Chapter 6 - 34. Cassandra owns her own business and drives...

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34. Cassandra owns her own business and drives her van 15,000 miles a year for business and 5,000 miles a year for commuting and personal use. She purchases a new van in 2007 and wants to claim the largest tax deduction possible for business use. Cassandra's total auto expenses for 2007 are as follows: Gas, oil, and maintenance $ 3,840 Insurance 775 Interest on car loan 1,200 Depreciation 2,960 License 180 Parking fees and tolls (all business) 240 Determine Cassandra's 2007 deduction for business use of the van. Because this is the first year Cassandra uses the van, she must select an accounting method to determine the costs associated with the van. She has the option of using either the standard mileage rate method or the actual cost method to determine her deduction on the van. Based on the calculation of the deduction under each method, the standard mileage method results in a $1,459 ($7,515 - $6,056) larger deduction. Parking and tolls are added separately, because these expenses are all business related. Interest expense is not considered a cost incurred to operate or maintain the vehicle and is deductible under either method if the taxpayer is self-employed. Because Cassandra is self-employed, she can deduct the business portion (75%) of the interest expense under both methods. Standard Mileage Deduction: 15,000 miles x 48.5 cents $ 7,275 Add: Parking and tolls 240 Total deduction $ 8,515 Interest expense ($1,200 x 75%) 900 Actual Cost Deduction: Total actual expenses (other than parking, tolls and interest) $ 7,755 Business usage percentage (15,000 mi. ÷ 20,000 mi.) x 75 % Allocated actual cost $ 5,816 Add: Parking and tolls 240 Total deduction $ 6,056 Interest expense ($1,200 x 75%) 900 Instructor's Note: For reporting purposes Interest expense is separately stated on Schedule C. 6-11
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6-12 Chapter 6: Business Expenses 37. Juanita travels to San Francisco for 7 days. The following facts are related to the trip: Round trip airfare $ 475 Hotel daily rate for single or double occupancy 175 Meals -- $40 per day 40 Incidentals -- $25 per day 25 a. If she spends 4 days on business and 3 days sightseeing, what amount may she deduct as travel expense? Based on time spent on business and personal activities, the trip was primarily for business. As a result, transportation is fully deductible. Other expenses are deducted as follows: Airfare $ 475 Hotel ($175 x 4) 700 Meals ($40 x 4 x 50%) 80 Incidentals ($25 x 4) 100 Total deduction $ 1,355 Only expenses related to the 4 days devoted to business can be deducted. Meals are further limited to 50% of the deductible amount. b. If she spends 2 days on business and 5 days sightseeing, what amount may she deduct as travel expense? Based on the time spent on business and personal activities, the trip was
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Chapter 6 - 34. Cassandra owns her own business and drives...

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