Posted by Jessica Ward on 9/2/10 9:21pm
Msg #351385

On "work" cars

So I have it figured out. My little red station wagon gets rear-ended every 27,400 miles. Today it hit, right on schedule--WHAM! Never mind the fact that I've just been back to work for two weeks after a bad disk injury.... now my back hurts like a #)*%#, just when it was beginning to get better, but thankfully, the car will live to rule the road again.

Here's my question--how do you all handle auto accidents? This car is both a "family" car and my work car. I consider an auto accident to be a "work" accident if it happened during notary work (as today's did) and would direct the insurance deductible to business expenses, etc. If I was hit while taking the kids to soccer, I'd consider it a personal expense.

Do you purchase your business car separately as in an asset of your business, or do you use the same car you use for personal purposes for business purposes (this is what I've always done, considering each notary trip the "commute" for the day.

Now, this accident has me wondering if I'm going about this properly, and I'm curious how others handle it.

While I've never hit anything, I've been rear-ended now about every 27,000 miles for the past five years, or about once every 10 months.

Jessica

Reply by MW/VA on 9/2/10 9:31pm
Msg #351387

I have one vehicle that I use for both business & personal. My insurance rating is that I do use it for business purposes, because it turns out that I'm using it for more than 50% business.
I take deductions at tax time based on mileage, but haven't been using the depreciation schedule because it didn't amount to that much. If you purchase a vehicle strictly for business purposes, you can deduct all those expenses, as well as take depreciation. How you treat the deductible for your accident would be up to you I suppose, providing you're insuring your vehicle for other than personal use in the first place. Just MO.

Reply by Jessica Ward on 9/2/10 9:51pm
Msg #351393

Yes, I've notified that I'm using the car for business purposes, so the insurance company knows, but I'm always curious--especially as I wonder what happens if the damage is more catastrophic (i.e. "totaled") what I should do with it... business vs. personal. I've been doing everything on my own the past few years, but now that my business is getting pretty big, I'm thinking it might be time to enroll a CPA for some of this stuff.

Reply by MW/VA on 9/2/10 10:32pm
Msg #351401

There are a couple of tax pros who post here regularly. You

might be able to connect with one of them.

Reply by Frank/NC on 9/3/10 10:08am
Msg #351436

Why not stop driving it at 26,900 miles and trade the car in. No more accidents and worries are over. Boy can I solve problems!

Reply by Linda_H/FL on 9/3/10 12:37pm
Msg #351464

LOL Frank..:) n/m

Reply by Jessica Ward on 9/3/10 12:47pm
Msg #351466

No kidding! I can't stand the idea of a car loan, so I buy with cash and I'm hoping to get a few years out of my little car. It's an 03 Toyota Matrix with 132,000 miles on it. I'm crossing my fingers for another 3-4 years with that car. (It does stand up to accidents remarkably well--I'm only on my 3rd rear bumper--after being hit five times, that's not too shabby!

Reply by taxpro on 9/3/10 2:40pm
Msg #351476

For tax purposes, the business use percentage of automobiles must be substantiated with a mileage log, and it doesn't really matter whether it's titled in your personal name or your business name. Any personal use of a "business-owned" auto is still personal use, and you are not allowed a tax deduction for the personal use. If you have a corporation, you have to include the value of the personal use on your W-2. So there's no legal way around it.

Everything will be prorated, whether it's the actual expenses or the standard mileage rate. A portion of the standard mileage rate is for depreciation, so the basis of your car is still adjusted for depreciation either way. For 2009, of the 55 cents per mile, 21 cents was depreciation. The depreciation portion of the standard mileage rate for prior years is as follows:
2008 - 21 cents
2007 - 19 cents
2006 - 17 cents
2005 - 17 cents

Regarding your auto accident, you could deduct the business percentage of your cost of the repairs (your deductible), but only if you use the actual method.

You could take it as a casualty loss, and you would prorate the loss between personal and business use. Your accident is not a "business" accident just because you were doing notary work at the time. It just as easily could have happened while taking the kids to soccer.

You'd need to prorate the loss, just as you would prorate gas, insurance, interest, repairs, etc. You would need to figure the adjusted basis of your car first. Remember that you have to figure the accumulated depreciation since you bought that car and reduce your basis by that amount. If you have traded in other business autos for this one, you'd have other basis adjustments as well.

If you have a casualty loss, the personal portion goes on Form 4684, then to Sch A, but you probably won't end up with a personal deduction due to the $100 reduction and the 10% of AGI floor. The business portion also goes on 4684, but ends up on your Sch C, and is not subject to the 10% floor. As you can see, it gets complicated. If you aren't familiar with this computation, I'd recommend you seek the help of an Enrolled Agent or CPA.

Reply by Jessica Ward on 9/3/10 7:53pm
Msg #351514

Thanks so much--this is VERY helpful! I'm printing it for my records. I had not thought of prorating the repairs (thankfully, I haven't had to do any repairs yet).

I also never thought to prorate my insurance, and maintenance--I've always just considered it personal. (I don't know why I didn't think of that before).

Thanks again very much. I am looking for a CPA to help me on my regular tax stuff. Every time I think I have enough time to do it all myself, I discover I really don't. I have two small businesses and two small children (both homeschooled) and just can't handle the tax side by myself anymore, especially since both businesses grew substantially this year.

Thanks again!

Reply by JanetK_CA on 9/4/10 3:05pm
Msg #351568

Keep in mind that, as taxpro said, the prorating only applies if you are using the "actual" cost method vs. using the standard mileage deduction ( the .55 per mile last year spoken of). If I understand all this correctly, you have to do it all one way or all the other way. I think this is a common misconception. But your own tax guy will set you straight

With an old paid-for car, my guess is that you're probably better off using the standard mileage deduction, especially if you put on lots of miles. If you track both mileage and expenses, your tax person will be able to tell you which is the best method for you.