Depreciation or milage on new vehicle for a "C"

[RWG1950]

Haven't had much experience with this issue in a number of years & thought I'd reach out & see how others might approach this.
Customer is semi retired but still operates a small daycare business out of her home. Normally nets about $ 8 to 10 K each year.
Uses her car for kids transport. We had been using the standard milage rate on prior car. In March of 2019 she bought a new vehicle for $ 33,403.
The new car was used about 78% for business in 2019. Wondering about using standard miles vs depreciation & actual expenses on the new car.
If the milage rate & finance interest is used on both cars for 2019, the "C" net is $ 5,109. If the new car is depreciated, the "C" net drops to $ 336.
My software tells me that Federal & state refunds if milage is used is $5,091. If new car depreciated & % of bus. expenses used they total $ 6,002.
Other than having to stay on actual expense for the life of the new vehicle, might there be any other possible negatives to using depreciation vs milage ?
Thanks for comments.

[Jiggers]

How long does the business keep a vehicle? If they keep it way past the time that it is depreciated, it is better to use the mileage rate. You must use the mileage rate the first year in service. Then you can change from year to year.

[TaxGuyBill]

Two things to consider is (1) How many miles are driven per year and (2) How long will they keep using the vehicle for business?

As a GENERAL rule, low mileage and/or keeping the vehicle for a short amount of time benefit from the Actual Expenses. But high mileage and/or keeping the business vehicle for many years benefit from using the Standard Mileage Rate.


In answer to your question, (1) Claiming Bonus depreciation this year may cause a lower vehicle deduction in future years, and (2) If business percentage drops to 50% or less in the next few years, the large depreciation deduction (partially including Bonus Depreciation) this year will need to be recalculated using Straight-line depreciation (effectively meaning Bonus depreciation would be recaptured) and (3) If vehicle is sold in the next few years, it will likely have a taxable gain (however, the tax savings now would almost certainly be larger than the tax from the gain from selling it).

[RWG1950]

My customer has consistently driven her vehicle 10 - 12 K miles yearly for many years. About 70 % of these have been business miles.
She tends to keep her cars for a very long time.
It is my understanding that she is beginning to wind down her business & plans to be completely out of daycare within 2 to 5 years

[Rapid Robert]

My customer has consistently driven her vehicle 10 - 12 K miles yearly for many years. About 70 % of these have been business miles.

In the first post, you said 78% for 2019. If she is driving the kids around for 9,000 miles, it sounds like she is providing day care out of her car, not out of her home. Her liability insurance for providing transport for hire must be pretty high.

[EvenKeelTax]

Wow that is a lot of miles for a daycare provider as Robert said I see a red flag there. Not saying it is impossible, but she better have good records on her end to prove it if she gets audited. Hope you have lots of due diligence notes on file.

[Lion]

Have you seen her mileage log?

[rbynaker]

My customer has consistently driven her vehicle 10 - 12 K miles yearly for many years. About 70 % of these have been business miles.
She tends to keep her cars for a very long time.
It is my understanding that she is beginning to wind down her business & plans to be completely out of daycare within 2 to 5 years

If she's winding down you might avoid accelerated depreciation because of the recapture rules (as mentioned in TGBs post #3). With the somewhat limited info presented, I'd probably recommend standard mileage.

Another thing not mentioned would be the record-keeping requirements. You'll need a mileage log either way but with actual expenses your client will need to document gas, repairs, etc. I track my expenses in Quicken anyway so not a big deal for me but most people find this too cumbersome (especially if they have multiple vehicles, then they need to go back and figure out which gas charge was for which vehicle, etc.)

[RWG1950]

Thanks everyone for your comments. They've been very helpful. Y'all are right though - a lot of miles for daycare.
This lady's kids are pre-school types. Doesn't do babies. Likes to take them on field trips. Apparently that's why the miles.
She's pretty organized & in addition to my organizer / engagement statement, she presents me annually with detailed pages on her
expenses, so I'm fairly confident that she has her ducks in a row here.
On the other hand, if she's not on the level, you may get my future e-mails from C-block.