CHAPTER 8

In the Garage

THESE DAYS EACH HOME has at least one car (and several televisions or other viewing devices). Some people are sharing the single car, driving each other to work. Others have multiple cars. Sadly, we fall into the latter category. Our driveway is filled with four vehicles at all times, plus one parked in the front of the house. At least two of them run. The rest? Only sometimes. The MGB? It will run again, someday. Sigh . . .

One of the things that has always puzzled me about auto insurance rates is this: Why must we pay full, separate fees for each and every car when there are only two people driving? After all, we can only drive one car at a time. Why aren’t we charged for the number of drivers, the highest replacement value (collision) for the most expensive vehicle, and our choice of liability coverage? Oh well, you figure it out.

Tip #97:

One of the most common sources of tax breaks comes from the use of vehicles. There are four ways to take advantage of vehicle-related deductions:

  1. 1. Charitable mileage
  2. 2. Medical mileage
  3. 3. Moving mileage
  4. 4. Business or job-related mileage

Tip #98:

Charitable mileage. This comes in at 14 cents per mile. The mileage rate is set by Congress, so it has not changed since 1998. (In 1997 it was 12 cents per mile.) Keep track of all charity-related driving. That includes going to meetings, volunteer work, driving your charitable charges to doctors’ offices, meetings, events, campgrounds, and so on.

Tip #99:

Charitable parking. Be sure to track all parking costs. If you don’t get a receipt (due to meters or other mechanical payments), write a note with the date, time, and amount of the parking fee and the charitable purpose.

Tip #100:

Business, moving, and medical mileage rates change annually. For 2015, the rates were:

For 2016, the rates are:

The IRS computes the new rates based on cost of living increases and some other factors. Generally, the rates only change in January. However, in years when gas prices rise or drop dramatically, the rates may change two or three times during the year. Most recently, in 2008 and 2011, we had two rates. You can look up the most current mileage rates and the history since 1997 on this IRS page: http://www.irs.gov/Tax-Professionals/Standard-Mileage-Rates.

Just in case the IRS changes the page’s URL, this page on the Small Business & Management website is consistently available: http://www.smbiz.com/sbrl003.html#smr.

Tip #101:

Make a note of the mileage shown on your vehicle(s) odometer(s) as early as possible in the beginning of the year so you have the starting point to track your annual mileage. Remember to write down the mileage at the end of year. You will need to know the total miles driven on each car each year when you deduct mileage for anything. If you didn’t start January out with this annual tradition, you can work backward to extrapolate the mileage in six easy steps:

  1. 1. Find a service or tune-up receipt for each car from the earliest date this year, or the latest date last year. It will show the mileage at the time of the service. Write that down.
  2. 2. Write down the mileage on your odometer today. Subtract the earlier mileage from today’s mileage. Pretend the mileage on January 18 was 56,117 and the mileage today is 58,326—the difference is 2,209 miles.
  3. 3. Count the number of days between the two dates. Suppose the service was done on January 18 and today is February 26, making it 39 days.
  4. 4. Divide the miles you’ve driven by the number of days. 2,209 divided by 39 = 56.64 miles per day.
  5. 5. Multiply the daily mileage by the number of days in the year so far. For example, if you are doing this on February 26, there have been 57 days so far this year = 3,228 miles driven this year.
  6. 6. Subtract the result from today’s odometer reading to get the beginning mileage for the year. Voila! 58,326 minus 3,228 = 55,098 is your approximate mileage on January 1.

Tip #102:

Track your moving mileage. That’s pretty easy. You generally won’t be doing this more than once a year. In order to deduct moving expenses at all you must meet the distance test: “Your new main job location is at least fifty miles farther from your former home than your old main job location was from your former home” (https://www.irs.gov/publications/p521/ar02.html). What mileage counts? Only the mileage you drive to move your household to the new location. If you are driving several cars (yours, your spouse’s, your teens, etc.) record the mileage on each car—and identify the car for the tax records. You may not use the mileage to drive to the new location to scout out a new home, or a job, or anything else. Just the pure moving-related mileage. However, if you rent a moving van, no need to worry about mileage. (Though keep the receipt because that is excellent proof of the distance driven.) When using a moving van, you deduct the cost of the rental and the fuel you bought throughout the trip—including the last fuel fill-up before you returned the rental car. Deduct all your moving expenses on Form 3903 (https://www.irs.gov/pub/irs-pdf/f3903.pdf). This will carry the allowable deduction to the front page of your Form 1040. You will be able to use these expenses even if you cannot itemize.

Tip #103:

More about moving. As long as we’re talking about moving mileage, let’s outline some of the other moving costs that are deductible. Naturally, if you pay a moving and storage company to move all your goods, you can deduct the full amount you pay them. Deduct your travel expenses—hotels, motels, or campgrounds along the way—for yourself and your moving helpers. Incidentally, be aware that someone might break into your rented moving conveyance. Please take appropriate precautions and keep irreplaceable valuables with you at all times.

Tip #104:

Moving insurance. Beware of theft. I have heard of several instances where people woke up and found that that the lock on their moving vehicle had been broken and many of their possessions had been stolen or ransacked. Or that their moving vehicle had been stolen outright. Stay in places where there is security or someone on the lodging’s desk at night. Try to get a room where the desk clerk can see your room and your car. Get moving insurance—the cost will be deductible. Ask your present homeowners insurance agent for information about a policy, or search online for moving insurance. If you are working with a moving and storage company, it helps to understand their terminology and what your coverage does and doesn’t offer. About.com has a page with good definitions (http://moving.about.com/od/hiringamovingcompany/tp/Definition-Of-Moving-Insurance-Terms-You-Should-Know.htm).

Tip #105:

Moving costs you may not deduct. There is no deduction for meals. Not yours, not your moving companions. If you don’t drive directly from your old home to your new home, there is no mileage deduction for side trips and touring around while making the move. So if you have taken this travel opportunity to indulge your curiosity, print out a Google Maps or MapQuest page showing what the direct mileage would have been. Store it in your tax file for the year.

Tip #106:

Reimbursements. Lots of large or wealthy employers provide full reimbursements for all your moving expenses. In fact, if you’re lucky, some employers even reimburse you for the costs of selling your old residence and buying your new one. Doesn’t that feel amazing? The bad news is most of those reimbursements are taxable income, since they are far beyond the actual deductible moving costs. The good news is those extra reimbursements have already been added to your wages and withholding has been taken. It would be wise to review your overall income with a tax pro in the year of your move to make sure you have had enough taxes withheld to cover the extra income. On the other hand, if you have only been reimbursed for moving and mileage, it’s not added to your income and you don’t need to report anything on your tax return. On the third hand (do you have three hands?), you may have gotten reimbursed for some costs, but not all of them. Report all the costs on Form 3903 and deduct the reimbursements you did receive. The difference will be a deduction you can use even without having to itemize.

Tip #107:

Doing time. In order to be allowed to use the moving expenses, you must meet the second test, the time test (https://www.irs.gov/publications/p521/ar02.html). Employees and self-employed business owners have to meet different tests about their working period after the move. When you’re married, only one spouse must meet one of the tests for the moving deductions to qualify. Let’s get the information straight from the IRS.

Time Test for Employees

If you are an employee, you must work full time for at least 39 weeks during the first 12 months after you arrive in the general area of your new job location (39-week test). Full-time employment depends on what is usual for your type of work in your area.

For purposes of this test, the following four rules apply:

Time Test for Self-Employed Persons

If you are self-employed, you must work full time for at least 39 weeks during the first 12 months and for a total of at least 78 weeks during the first 24 months after you arrive in the general area of your new job location (78-week test).

For purposes of the time test for self-employed persons, the following three rules apply:

Incidentally, if you haven’t met the time test at the time you file your tax return, don’t worry. Go ahead and file as if you had worked for the required number of months. You will only have to amend and take back this deduction if it turns out that you did not keep working long enough. Otherwise, you’re just fine.

Read IRS Publication 521 for more information about moving expenses (https://www.irs.gov/publications/p521).

Tip #108:

Business mileage. This is the big deduction for employees and business owners. Be sure to track all your business or job-related miles. These miles count:

The miles that don’t count? Commuting miles—driving to/from your home to your business. The nice thing about working from home for yourself or your employer’s benefit is that all mileage starts at your front door.

Tip #109:

Track your mileage carefully using pen/pencil and ink, or any other tools you can find. In Chapter 2, we suggested some tools that can help you with this. Or you can create your own Excel spreadsheet. It doesn’t hurt to back up your mileage log with a printout from MapQuest or Google Maps to prove the mileage for each trip. Here is a suggested Excel template heading and MapQuest record. Naturally you can create your own with headings that define your business or job-related travels: http://www.mapquest.com (see image).

Tip #110:

When you use the mileage method, you may still deduct all the parking lot, parking meter, and toll fees that you must pay when you drive for business. In addition, if you have to pay a separate fee to garage your vehicle (think New York, Chicago, and other places where space is at a premium), you may deduct a portion of that. Use the business percentage of your car use. For instance, let’s say you drive 12,000 miles a year and drove the car for 8,325 miles for business. You may deduct 69.375 percent (8325/12,000) of the garage rental.

Tip #111:

The hidden depreciation in the mileage. Most people don’t realize it, but the mileage rate includes a depreciation component. In year-to-year usage, it’s not a factor. But when you sell the car, you need to reduce the basis of the car by the amount of depreciation you have deducted on your tax return. So be sure to save your Form 4562 worksheets for all the years you use each vehicle for your job or business. You will need to prepare a spreadsheet showing the number of miles you have claimed each year. In the next column, show the depreciation per mile value. In the final column, show the total depreciation taken that year. Folks who run up the miles during the vehicle’s life may find that the depreciation has wiped out their basis altogether. See the example at the end of this Tip.

To read more about how to deduct auto expenses, and using the actual expenses instead of mileage, read chapter 4 of IRS Publication 463, “Transportation” (https://www.irs.gov/publications/p463/ch04.html).

Tip #112:

There are other ways to make your car pay. Let’s explore a few ideas:

Tip #113:

Turning your car into a billboard: http://www.wrapify.com/about/.

What a great way to generate income and get a complete makeover for your car. The company wraps your car in advertising. You get paid based on two criteria:

You don’t have to pay any fees or invest any money. All you need to qualify is to be over age 21, have a clean driving record, and have a car that is a 2008 model or newer (due to their insurance considerations). Oh yes, one more thing—you need an iPhone or device that runs IOS applications. If you qualify, and they have an advertiser in your area, they will wrap the ad around your car . . . and awaaaaaay you go!

The interesting thing about this revenue is that since it is based on the number of miles you drive, you can suddenly turn your commuting mileage into business mileage. You will report the income on Schedule C and deduct the mileage there as well.

Alas, you are not allowed to drive for Uber et al. when your car is wrapped.

Tip #114:

Uber, Lyft, Sidecar, and related quasi-cab services. The news is full of lawsuits by drivers, cities, and cab unions, as well as conflicts about whether the drivers are employees or independent contractors. For now, the general consensus is that they are independent contractors. That means you are running your own business. You need to do everything a normal business would do with respect to record keeping, cost tracking, mileage tracking, and so on. The good thing is these major companies provide a mileage tracker. Be sure to download the information at least monthly. In fact, it’s a good idea to check your data every few days to make sure you get paid for all your passengers. Uber, Lyft, and Sidecar take care of all payments from riders. Sometimes, though, riders will pay you tips. If they pay by credit card, fine. Your company will track that. But if you get paid by cash, it’s up to you to track the income. You could, of course, skip reporting the cash. But when the IRS runs audits, they will compare your income to other drivers for the same company. If they typically show that they receive tips and you don’t, well . . . you will get a deeper audit.

Many drivers sign up for all the services that operate in their town when they need the hours. Others are only driving part time around their regular jobs, classes, or home-making tasks. Incidentally, this is a terrific job for retirees. It gets you out of the house and talking to people. Who knows, you might even make new friends.

For riders, these are terrific services to call when you know you’re going to be drinking. Leave your car at home and get chauffeured to your event or lounge. Then have them come to get you at the end of the evening and take you home. You avoid not only DUIs (tickets and charges for driving under the influence) but also parking tickets for parking in permit-only zones. (If you’ve ever had a night out in Hollywood or West Hollywood, you’d know what I mean!)

Tip #115:

Getting a new car. My brother decided to drive for Uber a couple of years ago. His car was a bit too old and worn-out looking. So he bought a new car that he uses primarily for Uber and Lyft driving. It’s a good idea to buy a slightly used car and avoid paying for the value that drops the minute you drive off the dealer’s lot. Consider buying the dealer’s loan car, a salesman’s demo car, or the dealers’ leased vehicles. Why? It has been serviced by the dealer who is selling it. You can see the full maintenance record. You can get a substantial part of the warranty that’s left. Through the dealer, you can buy an extended warranty and keep the dealer’s maintenance crew at your beck and call. And if you get a nice dealer like I did when I bought my Infiniti, they will totally clean up and detail your “new” car, replacing soiled carpeting and giving you a car that is just like new. If you don’t get your used car from a dealer, please run a CarFax report on the car before buying it or have it inspected by an AAA (American Automobile Association) mechanic: http://www.carfax.com.

With a newly purchased car, you will need to decide if you want to depreciate the car and use actual expenses or use the mileage method. Frankly, with the severe limits on depreciation deductions, you’re better off using the mileage method. Think about it—if you drive about 50–100 miles each workday, you’ll end up with more than 18,000 miles. Multiply that by 57.5 cents (will be 56 cents in 2016) and you end up with more than $10,000 in mileage deductions. Your actual expenses, even in a car that gets about 23 miles per gallon (mpg), will be about $8,000 or less.

Tip #116:

Get rid of your car. While this isn’t a tax tip, it’s worth considering. Folks who do everything locally, including a commute within about five miles, should rethink the need for a car. Perhaps a decent bicycle with a basket or two might be a better choice. Let’s look at typical car costs:

That doesn’t even include parking fees. In contrast, no one charges fees for bikes. Heck, you could get a monthly bus pass to supplement your bike riding, often for $100 or less (https://www.metro.net/riding/fares). And many of the buses even have a place to store bicycles. Not only would it save you a fortune, but it would improve your health, breathing, reduce your weight, and maybe even give you an opportunity to get to know your neighbors a little better.