Car Expenses--What's Deductible And How?

[SilverSabre25]

Since September, we've been using our car one day a week to transport daycare kids. Well, it's daycare kid (singular) but I don't think numbers matter. We also, of course, use the car to run errands which end up being daycare related. Since I haven't been tracking things well this year, I assume I can't deduct anything. But I'm looking ahead to next year. How do I handle this?

~What car expenses can I deduct? (car payment, gas, maintenance, insurance?)
~How do I deduct them? (is it time/space, or something else?)
~Is the time/space on the car lower since we only drive a kid one day/week?
~Anything I'm not thinking of and should be?

Thanks!

[TomCopeland]

You can claim car expenses when you take a trip that is "primarily" for business. If you use the standard mileage rate you can claim $.50 a mile for business trips in 2010 and $.51 in 2011. You can also claim the business portion of car loan interest, and property tax, in addition to parking expenses.

If you use the actual expenses method you can claim the business portion of all your car expenses (gas, oil, repairs, car loan interest, property tax, depreciation, insurance, etc). To calculate your business portion - add up all your business miles (trips that were primarily business) and divide by the total number of miles you drove the car. If you drove 2,000 business miles and 10,000 total miles your business portion is 20%. Don't use your time-space percentage for car expenses.

"Primary purpose" means that more than 50% of the reason you are driving is for your business. Even though you didn't keep records in 2010 it's likely that you can reconstruct many records and claim expenses for 2010. Look at your calendar notations, contract, receipts, bank deposit statements, check register, credit/debit card statements to see evidence of business trip. Use MapQuest to determine distances.

[SilverSabre25]

thanks, Tom. I'm trying to get a handle on this, so bear with me, lol.

So today I went grocery shopping. More than 50% of the meals I serve are related to daycare (even though I'd be making snacks and meals if I didn't have the daycare) so does this make the shopping trip more than 50% business, so I can record the miles driven for this?

[Abigail]

Originally Posted by SilverSabre25

thanks, Tom. I'm trying to get a handle on this, so bear with me, lol.

So today I went grocery shopping. More than 50% of the meals I serve are related to daycare (even though I'd be making snacks and meals if I didn't have the daycare) so does this make the shopping trip more than 50% business, so I can record the miles driven for this?

I think it's slightly different than what you are thinking. More than 50% of the meals you serve are related to daycare..........true, but that will never change unless you have more family members in your home than daycare children. Think of it in terms of how many items you bought from the store. If 22 items were food/craft supplies for daycare and 30 items were for you and your family needs, then the trip would not be for daycare. If more items you purchased were for daycare than your own family needs, then you should claim it. That is how I understand it, but I'm open to other opinions also.

[SilverSabre25]

Originally Posted by Abigail

I think it's slightly different than what you are thinking. More than 50% of the meals you serve are related to daycare..........true, but that will never change unless you have more family members in your home than daycare children. Think of it in terms of how many items you bought from the store. If 22 items were food/craft supplies for daycare and 30 items were for you and your family needs, then the trip would not be for daycare. If more items you purchased were for daycare than your own family needs, then you should claim it. That is how I understand it, but I'm open to other opinions also.

And that's where I'm confused, because MOST of the food I buy is for meals/snacks served to daycare...but I, my husband, and my daughter usually/always eat these meals as well. I serve the dcks the same stuff I serve my own family...Gah, this is too confusing. I don't know that I'm going to even try to count mileage...it can't change things by *that* much, can it?

[Abigail]

Originally Posted by SilverSabre25

And that's where I'm confused, because MOST of the food I buy is for meals/snacks served to daycare...but I, my husband, and my daughter usually/always eat these meals as well. I serve the dcks the same stuff I serve my own family...Gah, this is too confusing. I don't know that I'm going to even try to count mileage...it can't change things by *that* much, can it?

Well, if you take a 5 mile round trip (meaning the store is 2.5 miles away from your home) twice a week for groceries that would be 52 weeks in a year times 2 times a week is 104 round trips to the store times 5 miles per round trip equals 520 miles. If you count only half of those trips as daycare trips--which is reasonable--that is 260 miles to the store for business purposes. Take those 260 miles multiplied by the standard 50 cents per mile standard allowance and that is $130 that you will not be taxed on. You can also track field trips, trips to your bank(this will add up too!), driving to and from school, and claim parking fees to the library if applicable. I wonder if you can claim miles driving to childcare training classes? My example is using the standard mileage allowance for 2010, but I am going to keep all receipts for everything done to my car including every time I fill up on gas because I wonder which way would be better for me. Actual vs. standard.

[Abigail]

Originally Posted by TomCopeland

You can claim car expenses when you take a trip that is "primarily" for business. If you use the standard mileage rate you can claim $.50 a mile for business trips in 2010 and $.51 in 2011. You can also claim the business portion of car loan interest, and property tax, in addition to parking expenses.

If you use the actual expenses method you can claim the business portion of all your car expenses (gas, oil, repairs, car loan interest, property tax, depreciation, insurance, etc). To calculate your business portion - add up all your business miles (trips that were primarily business) and divide by the total number of miles you drove the car. If you drove 2,000 business miles and 10,000 total miles your business portion is 20%. Don't use your time-space percentage for car expenses.

"Primary purpose" means that more than 50% of the reason you are driving is for your business. Even though you didn't keep records in 2010 it's likely that you can reconstruct many records and claim expenses for 2010. Look at your calendar notations, contract, receipts, bank deposit statements, check register, credit/debit card statements to see evidence of business trip. Use MapQuest to determine distances.

When you claim .50/mile...........does that mean you are not taxed on it or is it claimed as a business expense which ultimately may lower our tax bracket since it's income minus expenses to become taxable?

[TomCopeland]

Abigail is right. Car expenses are often a big deduction for many family child care providers so it's worthwhile to get the hang of it.

The question for each trip is "what's the primary purpose of the trip?". If the answer is "business" then you can deduct all the miles for this trip. If you are spending more money on business food than personal food on a trip to the grocery store then this is primarily business and you can deduct it. (Any food that you or your spouse or own child eat is always considered personal food, no matter if it's eaten during day care hours). For many providers, however, they are always buying more business food than personal food. If this is true for you don't claim 100% of all trips to the grocery store as business. The IRS won't accept this. You have to have a personal life (I know, I know - it may not seem like you do, but you do). So, claim some of the trips, but not all of them. If you are spending about 60% of your grocery money on business food, claim 60% of all the trips as business trips.

In Abigail's example, you would have a $130 business expense. When you put this expense on your Schedule C you will reduce your business profit. How much tax you pay on your business profit depends on your family's tax bracket. In general you will pay about 30% or 40% of your profit in taxes (Social Security and federal income taxes). So, if you were in the 30% tax bracket you would save about $39 in taxes on $130 of business expenses. Saving $39 on your taxes for a few minutes of work is worth it.

Recently my minivan was having major issues and was costing me too much. So i traded it in on a Pilot. The Pilot seats one more child than my van does and I was able to accept one more child into my daycare. Can i claim any of the purchase cost ( down payment etc) or just stick with my mileage?

[TomCopeland]

There are two ways to claim car expenses: Use the standard mileage rate ($.51 a mile in 2011) or the actual expenses method. If you use the actual expenses method you can deduct the business portion of all expenses associated with the vehicle (gas, oil, repairs, insurance, and depreciation on the cost of the car).

Most providers will probably get a bigger deduction using the actual expenses method, but it's more work because you have to save all your receipts.