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"Self-employed" taxpayer (actually a 1099-MISC independent contractor) owns one car and knows how many miles it was used for business. Schedule C (or C-EZ) says to enter number of miles used for business, number of miles used for commuting, and number of miles used for other purposes. Taxpayer does not have this information. I also do not understand why it is needed. Obviously, if actual expense method is used, I need to know either total mileage or non-business mileage, so that I know what % of insurance, registration, etc., can be deducted. However, if the fixed mileage rate (currently $0.55) is used, why do I need to know anything other than the number of business miles? For now, my best idea is to (i) use fixed mileage rate, not actual expenses, (ii) estimate total mileage for the year by interpolating between mileages shown on records from mechanic, tire store, etc., (iii) estimate commuting mileage by multiplying number of days worked by average commute per day, and (iv) estimate "other" mileage by subtracting commuting mileage and business mileage from total mileage. Is this right? Is there a better option?
While his regular car was at the mechanic, the same self-employed taxpayer used a car from Hertz for "business" (driving from home office to client location, which the IRS says is not commuting). Instructions from IRS say that cost of renting/leasing a car should be reported as reported as rent paid if actual expenses are used for that vehicle. Where should the CDW (collision damage waiver) be reported? "Insurance" seems logical, but the documents from Hertz clearly state that it is "not" insurance.

edited Dec 16 at 16:30

TaxQueries♦♦
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asked Nov 19 at 0:42

stephenweinstein
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AJ · Answer 1 · 2009-11-19 01:00:34Z UTC

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The taxpayer is required to keep contemporaneous records to verify the mileage driven for business purposes. That must contain beginning and ending mileage for the period. Even if it is done on the method where by we measure the route once every month or so and record the number of trips we must still have the beginning and ending records. At that point we have all the relevant information, the total miles and the number of miles for business. The other is not used for anything. If he does have commuting miles it would be easy to estimate. He must substantiate the miles that he is taking a deduction for.

answered Nov 19 at 1:00

AJ
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There are records of the business mileage that is being deducted. The problem is that the business use of the car did not begin until June and there are no mileage records before then (other than whatever the mechanic and tire store wrote when the car was serviced), so I do not know the non-business mileage from January through May. – stephenweinstein Nov 19 at 2:32

If the busines use did not begin until June, the the personal and commuting miles only need to be "estimated" for June through December. (The car is deemed "placed in service" in June.) – Brent Berkman Nov 19 at 4:20

Yes, Brent is 100% correct; the in service date will show beginning mileage and ending mileage and the records only need to be kept following in service dates. – SandySea Nov 19 at 19:17

Business use began several years earlier (while a W-2 employer of another company), but was reimbursed through a qualified plan. Also, there was some prior use deducted as travel expenses for overnight business trips. June 2009 is the first month of use being deducted in a way that requires reporting of personal use, but not the first month of business use. – stephenweinstein Nov 27 at 23:28

Toni McIntyre CPA · Answer 2 · 2009-12-18 14:51:58Z UTC

Just a couple of comments. There is no requirement to keep beginning & ending miles per trip. Many people have trip meters and use them instead. They should, however, note odometer reading at the beginning of the year (or use) and end. I always recommend to clients who work on their own vehicles that they get at least one oil change per year at a place that will note their odometer reading just in case of an audit. One other thing I mention is that this is one expense that has been exempted from Cohen. If it is the first audit an auditor will allow reconstruction but if it is not (or they acknowledge knowing of the requirement but refuse to comply) and this issue has previously been audited they often will not & appeals has been known to uphold them on this.
I note all this based on my many years as an IRS Tax Auditor/Tax Compliance Officer.

Tom · Answer 3 · 2009-11-19 14:33:30Z UTC

It's needed because the IRS asks for it. :-) Presumably so that the IRS computers can eyeball the figures for reasonableness checks against other similar businesses. They may also be able to flag returns that seem to be deducting commuter mileage.

If the client is keeping a mileage log, ideally he should be logging everything. A contemporaneous handwritten log would weigh pretty heavily in any audit. The likelihood of any actual client doing that, however, is remote. I estimate their daily commuting mileage using Google maps, multiply by 5 days by 52 weeks less vacation and holidays, etc.

Total mileage for the year I ask the client to estimate. It had better be reasonably more higher than the sum of the commuting and business miles. If the client has a lot of business miles and I want to take more care that the figures are accurate, I ask them to check their service receipts. (In a few cases, I've have them call the service station from my desk while I'm working on other parts of the return.)

If CDW is small relative to the total cost, I would just add include it as part of the rental. If it's larger, or just personal preference, then list it as a separate expense.

Tom

How should this person’s use of cars be reported on Schedule C

3 Answers