Accounting and Tax Tips and Information

written by Lauren Bakken, owner of Bakken CPA PC and co-author of the book, One-Income Household

Bakken CPA PC is dedicated to providing timely, professional, personalized service to businesses and individuals.

Tag Archives: vehicle deductions

Getting Rid of an Old Vehicle? Consider Donating it for a Tax Deduction!

Donating a car is a good way to get a tax deduction, but increased scrutiny by the IRS means taxpayers need to have a good understanding of the rules related to the items claimed on their return. If you are looking to donate a car to a local charity, be sure to take the proper steps to ensure you get the benefit on your tax return.

There are special limitations and substantiation requirements for a charitable contribution to become an itemized deduction. Charities usually sell the vehicle through a third party and in such cases; the deduction is based on proceeds of the sale, which may be less than what you consider fair market value.

Some of the specific requirements to take a deduction for a donation of a vehicle are:

  • Donations of motor vehicles (including automobiles, boats, airplanes, and motorcycles) with a claimed value of more than $500 needs a written acknowledgement from the organization receiving the vehicle.
  • The acknowledgement must contain certain information about the vehicle and certify that they will be using the vehicle.
  • This acknowledgement must be done within thirty days of the sale or contribution.
  • It then must be attached to the tax return of the taxpayer claiming the deduction.

The deduction you will be allowed to take is the lesser of the fair market value at the time of donation or the gross proceeds that the organization receives from the sale. However, if the charity gives the vehicle to a needy individual or sells it for significantly less than its value, the gross proceeds limit does not apply.

A way to figure the fair market value of the vehicle to be donated is by using an established used-vehicle pricing guide, such as Kelley Blue Book. The vehicle’s value can then be adjusted, but not above the guide’s estimate, for issues such as body damage or engine trouble. This estimate must be reasonable, as the IRS looks closely at these transactions and misstating the value can trigger an audit.

By donating that older vehicle that you plan on getting rid of, you could help out a local cause and save yourself some tax dollars. If you think you might be interested in donating a car to a charity, contact your accountant today, to be sure you have everything in line to get the deduction for it.

Do You Know about All of The Taxes You’ve Been Paying?

You’re sure you know about everything you’ve been paying for, right? If you haven’t looked closely at the bottom of those receipts, you may have overlooked the fine print. In a few unexpected places, the fine print may also include some taxes you didn’t know you were paying.

  • Self-Employment Tax – Social Security and Medicare tax for individuals who work for themselves. It is the same as the Social Security and Medicare taxes withheld from the pay of most wage earners.
  • Alternative Minimum Tax – A system of ensuring everyone pays a minimum amount of federal income tax, regardless of credits, deductions and exemptions.
  • Electricity or Natural Gas Tax – A tax collected by the energy suppliers based on the amount consumed during the billing cycle.
  • Cable Tax – A tax imposed on cable television.
  • Landline Phone Tax – Federal and state tax charged on fixed phone lines.
  • Cell Phone Tax – Federal and state tax imposed on cell phone users.
  • State Gasoline Tax – A tax on each gallon of gasoline sold.
  • Cigarette Tax – A tax on each purchase of cigarettes.
  • State Alcohol Tax – Tax imposed on the purchase of beer, wine and spirits.

It’s difficult to get a grip on your true tax burden, with taxes being scattered through so many different areas. There are tax calculators online that can help you compute a rough idea of this figure. It’s a good idea to try to stay on top of your tax liability throughout the year. Contact your accountant today to find out more.

Can You Take a Tax Deduction for Your Car?

If you use your car for business purposes, you may be able to claim a deduction for the expenses you incur during the year. But, there are certain rules and requirements to have them qualify as deductible car or truck expenses.

 

All or a portion of the cost of owning and using a vehicle may be claimed as a business expense.

 

You may claim these, as long as you maintain records that can substantiate your business use and expenses.

  • You must record the vehicle make and model;
  • If the weight is greater or less than 6,000 pounds;
  • Date of purchase and evidence of amount paid;
  • The date the vehicle was placed in service for business, and
  • The odometer reading on the first and last day of the tax year.

 

Along with these records, you must also maintain an accurate log of actual business travel. This must include the mileage, date and purpose of the travel.

 

There are two methods you can use to determine your eligible deduction: standard mileage rate or the actual expense method.

 

If your vehicle is used for both personal and business purposes, the costs related to the vehicle must be divided based on the mileage driven for each purpose. If you lease a car, you must use the standard mileage rate for the entire lease period, including renewals.

 

To use the standard mileage rate, you must track your miles with a log because the rate varies for use throughout the year 2011. For all of the miles driven for business use from January 1, 2011 to June 30, 2011 the rate is 51 cents per mile. For all of the miles driven for business use from July 1, 2011 to December 31, 2011 the rate is 55.5 cents per mile.

 

To apply the actual expense method, you must determine what it costs to operate the car for the business portion of the overall use of the vehicle. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation attributable to the portion of the total miles driven that are business miles. Car expenses for personal property tax, parking fees and tolls attributable to business use are deductible, whether you use the standard mileage rate or actual expenses.

 

To determine which method is more beneficial for you and if the IRS will allow you to use it, it is best to consult a CPA. This is a broad overview of a very complex topic with more regulations than listed above. But, hopefully you gained an understanding of this tricky tax topic!