Dilemma: SMR versus Actual Expenses

[Unregistered]

Help, my brain's fried!

I know that if the taxpayer opts to use the standard mileage rate in the first year he places his vehicle in service, he may then in later years choose either the SMR or actual expenses, dependent upon what is most beneficial for him.

I know that if the taxpayer opts to use the actual expenses in the first year, he is required to use actual expenses until he disposes of the vehicle.

What I don't know is how to determine what to do this year, if I discover that my new client has for the last 4 years been claiming both the SMR and actual expenses.

What do I do?

[Chief]

What to Do?

Yell! Shout!!

File 1040X

[Harvey Lucas]

Actual Expenses

Advise the client that he has underpaid his tax for the last 4 years because he has overstated his car expenses and that he should file amended returns to correct it.

Claim actual expense for 2005 because since he presumeable claimed actual expense in year 1, he is prohibted from claiming smr later....but....it is not the claiming of actual expense in year 1 that kills smr later....the smr killer is if he claimed "depreciation" in year 1 that was in excess of straight line.

The safe bet then for 2005 is to claim actual expense....maybe some straight line depreciation...but that depends on what he decides to do about those amended returns.

HarveyLucas