Who wouldn't prefer to take a shortcut?

Keeping track of business travel expenses is a necessary evil for tax purposes. To simplify matters somewhat, the IRS has authorized a standard mileage rate that may be used by business taxpayers who drive vehicles. The standard mileage method is not as time-consuming as maintaining records of all business-related expenses.

The IRS adjusts the standard mileage rate on an annual basis. It recently announced that the rate for 2009 is 55 cents for each business mile traveled (plus related tolls and parking fees). In contrast, the rate for 2008 was 50.5 cents for the first six months of the year and 58.5 cents for the last six months of the year.

Details: As a general rule, a taxpayer may deduct the cost of using a vehicle for business purposes, subject to certain limits for luxury cars. But then the taxpayer must keep track of such fixed expenses as depreciation, gas, oil, tires, repairs, insurance, parking fees and tolls. Similarly, if the vehicle is leased, the taxpayer may be entitled to deductions for lease payments.

Instead of deducting actual expenses, a taxpayer may opt to use the convenient standard mileage rate established by the IRS for that particular year. All of the costs of operating the car-including depreciation-are built into the standard mileage rate.

Example: John Jones, a construction firm owner, drives 15,000 business miles a year in his car. He also incurs $1,000 in business-related parking fees and tolls. If John uses the standard mile­age rate method in 2009, he can deduct $8,250 (55 cents × 15,000 miles) for the mileage. When he adds in tolls and parking fees, the total deduction for 2009 is $9,250 ($8,250 + $1,000) using this shortcut.

However, the standard mileage allowance cannot be used in certain conditions, including the following:

• The taxpayer owns the vehicle and has used a method of depreciation other than straight-line depreciation in a previous year (including the Section 179 allowance).
• For a leased vehicle, the standard mileage rate must be used for the entire lease period.
• The taxpayer operates five or more vehicles at the same time for business purposes (e.g., fleet operations).
• The vehicle is used for hire (e.g., taxicabs and limousines).

Most company owners should be able to avoid problems as long as accelerated depreciation has not been claimed for the vehicle in the past.

Whether or not this method should be elected depends on the circumstances. Be aware that deducting actual expenses will produce a larger deduction if the operational costs exceed
55 cents per mile. In addition, Congress may revive bonus depreciation for vehicles placed in service this year. There is no benefit for bonus depreciation if the standard mileage rate is used.

Recommendation: Talk things over with your trusted advisor to determine the best course of action. Then coordinate the necessary recordkeeping activities. Contact us - we can help.

Alicia L. Guertin, CPA is a Manager in our Tax Department, serving Family Wealth clients and Game Plan Financial, our professional athlete and celebrity niche tax practice. She has worked as an accountant in the sports industry for over ten years, specializing in handling the complex financial needs of professional football, baseball, basketball and hockey players. In addition to providing tax planning and compliance services for her high net worth clients, Alicia also acts as a trusted advisor, assisting clients by coordinating all of the financial aspects of their lives. Her financial and accounting expertise, combined with her comprehensive knowledge of the sports industry, enables her to assist her clients in protecting and growing their assets, manage their risk and prepare them for a successful future. Contact her by clicking the Email Daszkal Bolton link below or call her at 561.953.1513.