How to write off car for business expense?

[mozar]

Hello,
My mom has a business of teaching music lessons. Most of the lessons she drives to the other persons house. Sometimes she hosts them in her home. She has a 2010 hyundai accent and she has a 45 minute commute to most of her lessons. She would like to upgrade to the new accent because it has a better breaking system, but she is also OK with keeping her current car.

1st question: If she keeps her current car can she write off both the car expenses and a home office? She thinks she can only do one or the other.
2nd question: If she bought a new car can she write off a portion of the purchase price?

Related advice is also appreciated. Thanks!

[CPA CB]

Where are you located?

The rules differ based on Country....

[surfhb]

She can write off whatever the portion is she is driving for her business.

She can also write off a portion of her mortgage or rent for the home office.   I wouldn't do this however since it tends to bring on an audit...not worth the hassle IMO.

She also needs to keep good records and a legitimate set up business for all this

THE BAD:  She wants to buy a new car because of brakes?!   Seriously?    Your mother is considering a major financial mistake.    You need to do an intervention here :)

[mozar]

USA.
She's got good records and an ein. She has been writing off a portion of her mortgage for years now, I can't convince her otherwise. She would consider not buying a new car if I had a compelling argument. I don't know anything about brakes tho.

[surfhb]

Tell her to ask any mechanic they're opinion on brakes and the safety of the car.

Another argument is by showing her the numbers of lost $ in investments, depreciation, financing on a new car.    May not do any good but at least you tried ;)

[terran]

You can either use actual expenses multiplied by the amount of mileage the car is used for business use (as compared to personal use), or you can use the standard mileage rate (56 cents per mile). Looks like there are some rules about when/how you can switch back and forth between uses. I suspect that the standard mileage rate will work out better in most cases except where the car is expensive an/or few total miles are put on (either for business or personal use) as both would raise the "fixed" costs that don't increase as much with mileage (depreciation, and insurance). Either way, careful tracking of mileage is going to be important.

http://www.irs.gov/publications/p463/ch04.html#en_US_2014_publink100033930

[dandarc]

Presumably she hasn't been deducting mileage ever for this business, and didn't depreciate the existing car.

Probably the simple thing to do is to start keeping a mileage, keep the old car, and start taking the standard mileage deduction - looks like $0.575 / mile or so.  That will add up in a hurry, and she won't go through the expense of buying another car.  So if she drives this thing for another 10 years, she can keep deducting that business mileage, long past when the car would have been fully depreciated.  Given that she doesn't need to operate a truck or a luxury car to teach piano, this is the route I'd go.

The other option, as far as business use of vehicle is concerned, is to track actual costs.  Keep records of all maintenance, gas purchases, etc.  Then also keep a mileage log, because she likely won't be only using this for business.  This option might work out at first, particularly if she buys the new car (depreciation), but once you've gone actual-costs on a particular vehicle, you can't go back to the standard mileage deduction.

[mozar]

I think she went to the mechanic and he told her she should upgrade. I've looked over her investments and she's set for retirement. I'm thinking she can afford it IF she drives this next one into the ground. She can also get $5000 for trade in.

@terran: I will send her the link.

@dandarc: that's a good point about depreciation vs business expense. I'll try to explain that too her. Why can't you go back to mileage after actual costs?

[dandarc]

I think she went to the mechanic and he told her she should upgrade. I've looked over her investments and she's set for retirement. I'm thinking she can afford it IF she drives this next one into the ground. She can also get $5000 for trade in.

@terran: I will send her the link.

@dandarc: that's a good point about depreciation vs business expense. I'll try to explain that too her. Why can't you go back to mileage after actual costs?

Because that's what the law says.  Depreciation is baked in to the standard mileage cost, so if you were to go actual costs and depreciate the vehicle (why wouldn't you), then try and use the standard rate later, you'd be effectively double-dipping on the depreciation deduction.

The most cost-effective way to do business mileage is to drive as cheap & efficient a car as you can, and take the standard mileage.  That standard rate is an average across all vehicles - driving an older economy car will likely actually cost less than the average, where driving a brand-new 8-seater SUV would cost more.  One nice thing about the piano-teaching profession is that there is no expectation to be driving around in a Lexus - even though your some of your clients may be quite well off, they won't think twice about you pulling up in an old beater, because piano teacher is, for the most part, not one of those jobs where any kind of status is expected by anyone.

[surfhb]

Her mechanic is a POS by suggesting she buy a new car because of brakes btw :)

[Rubic]

You can either use actual expenses multiplied by the amount of mileage the car is used for business use (as compared to personal use), or you can use the standard mileage rate (56 cents per mile).

Keeping a daily odometer log and deducting the standard mileage rate will provide excellent documentation and keep the OP's Mom clear with the IRS.  We do this with our employees.

[Axecleaver]

There is no relationship or restriction for deducting a portion of your home as a home office and also deducting car expenses. In this scenario, her principle place of business is her home, and she sometimes travels to client locations.

The easiest way to manage car deductions is to take the standard mileage deduction. Much less record keeping and hassle. Keep a mileage log listing date, origin and destination, and total miles. Total it up at the end of the year. You also need to indicate what % of miles you drove the car for personal use, but as far as I know this doesn't affect the deduction. Take a look at form 1040 Schedule C.