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Posted by Justin on February 2, 2007, 2:10 am
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I'm deducting mileage on form 2106. I'm a traveling music
teacher, I commute to an office and from there am sent to
various places to teach.
It is my understanding that my mileage accrued during the
work day (after arriving at the office) is deductible. I
travel 30,000 miles a year during the workday outside of my
commute to the office. This adds up to a very sizeable
deduction. I am no reimbursed for any travel expenses except
tolls.
The car I use is for both business and personal, with only
about 10,000 miles a year being for personal. I sold the car
this year and bought another car. Turbotax is taking the
$4000 I sold the car for and counting as income, which is
reducing my refund by over $600. I owed $4500 on the car
when I sold it for $4000. It is not like this money was
"profit" or "free and clear".
Form 2106 is clear cut and says "Date Vehicle Sold" and
"Sale Price". After entering these fields, Turbotax reduces
over $600 in my rebate. It never asks wether there was a car
loan?
If it matters, I do not depreciate the car as an asset. I
just take the mileage deduction each year.
Any help would be greatly appreciated, thanks.
Thanks,
Justin
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Posted by Shyster1040 on February 2, 2007, 8:15 pm
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The problem is that in previous years you didn't claim the
allowable depreciation on the car.
The fact that you had a loan on the car and paid it off, by
itself, is irrelevant. For tax purposes, even though you
borrowed the money, you were given a basis in the vehicle
equal to the purchase price just as if you had spent your
own money instead of borrowed money.
Had you claimed the allowable depreciation, your taxes for
the prior years would have been reduced, and the basis of
the car would have been reduced accordingly.
However, even if you didn't claim the depreciation as a
deduction, the basis of the car is still reduced by the
amount of depreciation that could have been taken but
wasn't. See Code Sec. 1016.
Thus, when you sold the car, you would have gain for tax
purposes equal to $4,000, minus any remaining basis. In
your case, it appears that the program has been told that
the vehicle is 100% business-use, and as a result has
treated your basis as $0, resulting in a gain of $4,000,
less $0 = $4,000. See Code Sec. 1001; see also Sec. 1245
(requiring recapture of depreciation as ordinary income
rather than capital gain).
That being said, on the basis of your mileage, it appears to
be the case that 1/4 of your use was personal and thus 1/4
of your original cost basis would not be depreciable, so you
should still have a basis of at least 1/4 of the original
purchase price left in the car.
I hate to say it, but I think now would be a good time for
you to collect all of your records, your prior years' tax
returns, and get some advice from a good CPA, because using
the software program is not working out for you. Also, you
may have other expenses that are deductible that you haven't
claimed, e.g., the tolls you mention. Finally, to the
extent that you have to recognize gain on the car because of
the business-use depreciation, that part of the car should
constitute a so-called 1231 Asset, and to the extent that
the gain you recognized is not treated as ordinary income by
Sec. 1245 on account of depreciation recapture, that gain
should be a long term capital gain if the car was your only
1231 Asset, but may be an ordinary gain if you had other
1231 Assets and your 1231 losses exceeded your 1231 gains.
In addition, if you didn't claim depreciation on your prior
3 years' returns, it may be worthwhile filing amended
returns to claim that depreciation and get a refund of the
excess taxes you paid for those years (you generally cannot
go back further than 3 years, unfortunately). If nothing
else, getting a refund for your prior years will take some
of the sting out of the extra tax hit this year.
Last of all, since you have a significant stake at risk in
your business, you need to get some help setting up a basic
set of books and basic tax advice going forward so that you
don't unnecessarily increase the amount of tax you have to
pay.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Paul Thomas, CPA on February 2, 2007, 8:15 pm
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> I'm deducting mileage on form 2106. I'm a traveling music
> teacher, I commute to an office and from there am sent to
> various places to teach.
>
> It is my understanding that my mileage accrued during the
> work day (after arriving at the office) is deductible. I
> travel 30,000 miles a year during the workday outside of my
> commute to the office. This adds up to a very sizeable
> deduction. I am no reimbursed for any travel expenses except
> tolls.
>
> The car I use is for both business and personal, with only
> about 10,000 miles a year being for personal. I sold the car
> this year and bought another car. Turbotax is taking the
> $4000 I sold the car for and counting as income, which is
> reducing my refund by over $600. I owed $4500 on the car
> when I sold it for $4000. It is not like this money was
> "profit" or "free and clear".
>
> Form 2106 is clear cut and says "Date Vehicle Sold" and
> "Sale Price". After entering these fields, Turbotax reduces
> over $600 in my rebate. It never asks wether there was a car
> loan?
>
> If it matters, I do not depreciate the car as an asset. I
> just take the mileage deduction each year.
Yeah, well a portion of the standard mileage deduction is
accounting for the depreciation of the vehicle, and to tell
it like it is, any loan amount is irrelevant to the
computation of gain or loss.
I wonder though, if you are taking the standard mileage
rate, if when you told TT that you sold the car, if someone
is taking into account the cost basis (ie: what you bought
it for). Did the program at some point ask you what you
paid for the vehicle?
--
Paul Thomas, CPA
paulthomascpapc@bellsouth.net
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Bill Brown on February 2, 2007, 8:15 pm
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> Form 2106 is clear cut and says "Date Vehicle Sold" and
> "Sale Price". After entering these fields, Turbotax reduces
> over $600 in my rebate. It never asks wether there was a car
> loan?
The existence of a loan is irrelevant.
> If it matters, I do not depreciate the car as an asset. I
> just take the mileage deduction each year.
The standard mileage includes a depreciation component.
That's why you ended up with a gain on the disposal of your
old car.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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Posted by Wilecoyote on February 2, 2007, 8:15 pm
Please log in for more thread options
> I'm deducting mileage on form 2106. I'm a traveling music
> teacher, I commute to an office and from there am sent to
> various places to teach.
>
> It is my understanding that my mileage accrued during the
> work day (after arriving at the office) is deductible. I
> travel 30,000 miles a year during the workday outside of my
> commute to the office. This adds up to a very sizeable
> deduction. I am no reimbursed for any travel expenses except
> tolls.
>
> The car I use is for both business and personal, with only
> about 10,000 miles a year being for personal. I sold the car
> this year and bought another car. Turbotax is taking the
> $4000 I sold the car for and counting as income, which is
> reducing my refund by over $600. I owed $4500 on the car
> when I sold it for $4000. It is not like this money was
> "profit" or "free and clear".
>
> Form 2106 is clear cut and says "Date Vehicle Sold" and
> "Sale Price". After entering these fields, Turbotax reduces
> over $600 in my rebate. It never asks wether there was a car
> loan?
>
> If it matters, I do not depreciate the car as an asset. I
> just take the mileage deduction each year.
>
> Any help would be greatly appreciated, thanks.
As I don't have all the info for your retuen, I can only
speculate on whats going on. The one thing that does catch
my eye is this.
"I sold the car this year and bought another car."
typically this would be called a like kind exchange, anbd no
gain/loss would be figured on the exchange.
<< ======================================================= >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ======================================================= >>
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