Taxpayers using a vehicle for business-related travel need to understand how they may claim vehicle travel expenses. They can either claim a deduction based on allowable business mileage during the year (Standard Mileage) or claim the business use percentage of actual vehicle expense during the year (Actual Expenses). The Internal Revenue Service makes your first-year deduction decision by only allowing you to use the standard mileage method. However, you may want to switch methods in the second and subsequent years.

Claiming Standard Mileage Expense

While some business tax deductions can be detailed and complicated, using the standard mileage deduction is rather easy. The Internal Revenue Service publishes the standard mileage rate each year. This rate is then applied to your business miles for the year to compute your mileage deduction.

The IRS standard mileage rate for 2019 is as follows:

• 58 cents per mile for standard use
• 20 cents per mile for use for medical or qualifying moving purposes
• 14 cents per mile when used in a charitable cause

It is important to note that the standard mileage rate includes fuel, maintenance, repairs, insurance, and licenses so you cannot deduct these expenses in addition to using the standard mileage rate. You can still deduct tolls and parking.

Deducting Actual Expenses

Many taxpayers may want to use the actual expense method instead of the standard mileage method. Under the actual expense method, you first divide your total annual business miles by the vehicle’s total annual miles to determine your business use percentage. You then multiply your actual expense during the year by the business use percentage to determine your deductible expense. Actual expenses include:

• Either lease payments or depreciation if you purchased the vehicle
• Fuel
• Vehicle repairs and servicing
• Tire purchases
• Insurance premiums
• Taxes and licenses

Documentation Requirements

The IRS requires you to document your business miles and to produce a mileage log and actual expense receipts during an audit. The mileage log rule applies whether you use the standard mileage method or claim actual expense. If you fail to keep a log, the IRS will deny your vehicle-related expense. Your log should include the starting address and the address traveled to, the miles and the business purpose. You should also keep oil change records to document your vehicle’s odometer reading.

Always remember that complying with tax law is important.  Tax agencies can deny a deduction if they find that the taxpayer overstated a deduction or failed to produce requested records to document a deduction. You also need to timely file and pay all taxes.

The preceding is solely intended for informational purposes and is not intended as legal advice.  It is important for business owners to consult with an experienced tax attorney or Certified Public Accountant.  Contact our office if you would like to further discuss your taxes.

Even the most honest of taxpayers can be left trembling at the thought of an IRS audit. Let’s face it–it’s right up there with public speaking. To survive an audit, you’ve got to arm yourself with information. You should understand what the audit process is all about, why your return was audited, what your rights and responsibilities are, and how you can appeal the findings.

An audit is not an accusation of wrongdoing

An IRS audit is an impartial review of your tax return to determine its accuracy–it’s not an accusation of wrongdoing. However, you must demonstrate to the IRS that you reported all of your income and were entitled to any credits, deductions, and exemptions in question.

The IRS generally must complete an audit within three years of the time the tax return is filed, unless tax fraud or a substantial under reporting of income is involved.

Certain returns run a greater risk of audit

Several factors can lead the IRS to single out your return for an audit. For instance, taxpayers who are self-employed, receive much of their income in tips, or run cash-intensive businesses historically have faced a greater likelihood of audits. The IRS may also pay more attention to professionals such as doctors, lawyers, and accountants (who often run their own businesses and do their own bookkeeping). In addition, if your itemized deductions in several major categories–e.g., medical and dental expenses, taxes, charitable contributions, and miscellaneous deductions–are greater than the statistical average, you’ll generally have an increased chance of being audited.

Other things that may lead to an audit could include:

• A return that is missing required schedules or forms
• A return signed by a preparer associated with problems in the past
• A return reporting income of at least $200,000 (in general, higher income may lead to an increased chance of audit)

There are three types of audits

If you are to be audited, the IRS will inform you by telephone or letter. If contacted by telephone, the IRS will also send a letter confirming the audit. E-mail notification is not used by the IRS.

There are three types of audits:

1. A Correspondence Audit: This is typically for minor issues and requires only that you mail certain information to the IRS. For example, maybe you forgot to attach a Schedule C to your income tax return. The matter will be closed if the IRS is satisfied with your paperwork.
2. An Office Audit: Here, you’d typically bring your tax-related records to an IRS office for examination. For example, if you claimed an unusually high deduction for medical expenses, the IRS may want to see your medical bills and canceled checks, among other things.
3. A Field Audit: Here, the auditor generally visits your home or business to verify the accuracy of your tax return. It may be possible for the auditor to visit the office of your representative, instead.

Know your rights regarding the audit

You have several rights when you’re involved in an audit. These include:

• The right to professional and courteous treatment
• The right to an explanation of the audit process
• The right to representation
• The right to know why the IRS is asking for information, how the information will be used, and what will happen if the information is not provided
• The right to appeal decisions

Consider the following when you are audited:

• Request a postponement (whenever you need it) to gather your records and put them in order
• Be sure to read IRS Publication 1 (Taxpayers’ Bill of Rights) before your audit
• Before your initial interview with the IRS agent, meet with your representative to discuss strategies and expected results
• Bring to the audit only the documents that are requested in the IRS notice
• Be thoroughly prepared–if your records clearly substantiate the items claimed on your return, the agent won’t waste time conducting a more in-depth audit
• Be professional and courteous (and expect the same treatment in return)
• Do not volunteer information to the IRS agent; if you have a representative, he or she should respond to the agent’s questions
• Don’t lie
• Keep detailed records of any materials that you submit to the agent and of any questions asked by the agent
• Ask to speak to the auditor’s supervisor if you think that the agent is treating you unfairly
• When you get the examination report, call the auditor if you don’t understand or agree with it
• If you don’t agree with the audit results, request a conference with a manager, and know your appeal rights

You can appeal if you disagree with the audit result

You can either agree or disagree with the auditor’s findings. If you agree, you’ll complete some paperwork and pay what’s owed. If you disagree with the auditor, the issues in question can be reviewed informally with the auditor’s supervisor. Or, you can appeal to the IRS Appeals Office, which is independent of the local office that conducted the audit. You can appeal the auditor’s findings by sending a protest letter to the IRS within 30 days of receiving the audit report. If you do not reach an agreement with the appeals officer (or you do not wish to use the appeals office), you may be able to take your case to the U.S. Tax Court, U.S. Court of Federal Claims, or U.S. District Court where you live.

On February 26, 2014, the Ohio Senate passed bill S.B.243 that authorizes an annual three-day sales tax holiday the first Friday in August. The bill covers items such as computers (less any manufacturer’s rebate) costing $1,000 or less, computer supplies (less manufacturer’s rebate) costing $750 or less, clothing costing $100 or less, school supplies costing $20 or less and school instructional materials costing $20 or less. The legislation was co-sponsored by Senators Faber, Hit, Hughes, Jones, Lehner, Obhof, Oelslager and Schaffer. The bill now goes to the House for approval.

Have you ever wondered what is “alternative minimum tax” and how it affects you? To answer the first question, alternative minimum tax, AMT for short, was enacted in 1969 as an attempt to make sure that wealthy taxpayers – usually taxpayers having the largest tax deductions – paid at least a “minimum” amount in tax. However, middle income taxpayers soon found themselves subject to the tax because Congress had failed to inflation index the AMT exemption brackets (exemption brackets are per filing status, dollar based thresholds used to exempt taxpayers from the tax). In 2013, Congress finally passed an AMT fix by permanently inflation indexing the brackets.

So does AMT affect you? You may be subject to AMT if you have taxable income, plus certain deductions, exceeding your AMT exemption bracket. For 2013, the exemption bracket for Single or Head of Household filers is $51,900. If you file Married Filing Joint or Qualifying Widow(er), the exemption is $80,800. For Married Filing Separate, the exemption is $40,400.

The rules for calculating AMT are complex. However, in a nutshell, you begin with taxable income as computed under regular tax rules and add back certain Schedule A deductions (like state and local income taxes, investment interest expense, certain home mortgage interest, etc.) and other deductions like net operating losses, certain depletion and depreciation expenses, etc. You then compute the amount of alternative tax that would be due on the AMT taxable income. If the alternative tax is higher than the regular tax, you pay the alternative tax. In other words, if the amount of tax you owe under normal tax rules is not high enough, you must pay the higher alternative tax.

You should contact your tax or legal advisor if you would like more guidance on how AMT affects you. In addition, the IRS provides an AMT Assistant tool to help you assess.