Mileage vs. Actual Auto Expenses

[pmedders]

Is there a rule of thumb to determine when it is more beneficial to go mileage vs. actual exepnses? Thank you for your help.

[Black Bart]

Smr

I don't know if there's any rule of thumb--just, I guess, it mostly depends on whether or not they bought a late model car this year. If they did then there's a possibility that the large depreciation might be more than the mileage if they didn't drive too many miles. And, of course, there's the S-179, although -- given the price of cars today -- the "regular" depreciation will probably yield as much expense as the $3,060-capped S-179 on a less than 6,000 pounder. In the past, if I was using actual expense, I'd have taken 179 anyway (even if the amounts were equal) if I didn't need it elsewhere, just to nail it down in case an audit reduced other expenses. But now that you can retroactively choose 179, that's no longer an issue.

If there's substantial business mileage on older-model cars, there's almost no question but that the standard mileage rate will vastly exceed actual expenses,

[Jiggers]

Depends!

As Wayne Hebert says in his NCPE seminars, "It depends"!

If the taxpayer is one who normally keeps his vehicles for many years, it is usually more advantageous to use the mileage rate.

If the taxpayer's business is home based, such as Tupperware, Mary Kay, etc., I insist on the mileage rate.

If the taxpayer is one who buys a new vehicle every 3 years or so, I will use the actual expenses.

[John of PA]

SL Depreciation

Yes and don't forget, if you use SL depreciation with the actual method, then you can switch to the standard if you wish (when the car gets older). Yes?

[jainen]

first year

Not so. To take standard mileage allowance, you must use it in the first year. After that, you can switch to SL if you want.

[Lion]

Mileage Methods

Ideally, you will use whichever method results in the largest deduction for your client. However, things to consider include (just off the top of my pointy head):
Using Standard in the first year allows you to use either method is later years.
Will your client track his actual expenses accurately?
Did he already use Actual for that vehicle?
And, if he doesn't drive very many business miles, it's not going to make much difference either way!

[Black Bart]

)
.
Will your client track his actual expenses accurately?
Did he already use Actual for that vehicle?
And, if he doesn't drive very many business miles, it's not going to make much difference either way!

Can't speak for your clients, but here's the likely answers for mine:

Will client track...? Absolutely not--always promises--never has yet--don't know why he'd start now.

Used Actual...? Who knows? He's not even sure what cars he owned last year, much less depreciation method.

Many business miles...? I've got a client claimed he drove 98,000 '04 business miles. Waiting for IRS computer to hiccup.

[Lion]

Exactly!

Exactly! I have enough trouble just getting a client to give me a number for his business miles. It's always SALY -- same as last year. So, Actual Method is seldom something anyone has enough information to take advantage of. (Hope it's not this Board where I'll be censored for ending a sentence with a preposition.) I still have to convince clients they can't deduct all their car expenses just because they put a sign on their car.