Vehicle Expenses

[Super Mom]

Just noticed that the previous preparer had car and truck and fuel expenses on the 1065 but was not depreciating any vehicle. Doesn't the IRS notice this stuff???? I assume rightly, in the absence of a mileage log, I should show the expenses and depreciation---applying a business personal use percentage---correct?

[TXEA]

The first thing to make certain of is that the business owns the vehicle before taking depreciation.

If the business does not own the vehicle, then the partners only recourse is to submit mileage expenses under an accountable plan arrangement. All of the expenses for gas, repairs, maintenance would be removed from the return. I guess these expenses could be deemed mileage reimbursements to the partner that incurred the expenses assuming a mileage log has been maintained.

Either way, if this is not a 100% business use vehicle (not used by a partner) you will need a mileage log to allocate the expenses between business and personal (assuming the partnership actually owns the vehicle) or submit reimbursements to the partner for a personally owned vehicle.

[Gretel]

If the business does not own the vehicle, then the partners only recourse is to submit mileage expenses under an accountable plan arrangement. vehicle.

This is one of the options. Another one is to have a Partnership/Operating Agreement requiring the partners to pay auto related expenses out of pocket. Then these expenses would go on page 2 of Sch. E. Mileage log required.

[TXEA]

This is one of the options. Another one is to have a Partnership/Operating Agreement requiring the partners to pay auto related expenses out of pocket. Then these expenses would go on page 2 of Sch. E. Mileage log required.

Agreed, but it is a little hard to do that after the fact. It is a good option for 2015.

[Super Mom]

When you say if the business owns the vehicle, you don't mean if it is in a partner's name do you?

[TXEA]

Is the title of the car in the name of the company or one of its partners? If the partner owns the car (vehicle) then it is not depreciable by the partnership nor are the expenses deductible on the partnership return (except in the form of an accountable plan reimbursement based on business miles).

[Super Mom]

Wow! So if it is a vehicle used 100% in the business, it cannot be depreciated unless in partnership name?

[Super Mom]

And I'm looking at Page 2 of E and not seeing a place for mileage. Were does it go?

[TXEA]

A business can not depreciate an asset it does not own (unless maybe it is a capitalized lease in the business name - i.e. a lease with a bargain purchase price).

Business Mileage Reimbursement is taken as other deduction on the tax return. There is no line for it on the first page of the 1065 other than the other deductions line (which should be itemized).

[Super Mom]

So the business mile reimbursement goes on the 1065 if they have a log and is in the operating agreement?

[Lion]

No. It goes on the partnership return if the company reimburses the partner. It goes on the partner's Sch E page 2 (check with your software for data entry) as UPE if the operating agreement requires partners to use their personal vehicles for biz withOUT company reimbursements.

[TXEA]

If in operating agreement that the partner pays for vehicle expenses, then it goes on the 1040 with a deduction on Schedule E titled UPE.

Agree with Lion.

[Super Mom]

Oh ok, thanks so much. So if it is in the operating agreement that the partnership will reimburse for mileage, it would go on the 1065, right?

[Lion]

If the partner turns in expense accounts and the partnership reimburses the partner due to an accountable plan, then the partnership deducts the expenses.

[Super Mom]

Thanks for your patience with all my questions! I learn something every day!