Section 179 deductions are the tax magic that let you fully deduct capital assets in the year your purchase them. By combining Section 179 and the depreciation rules regarding purchasing automobiles for business, you can save a good amount of money.
Vehicles have special depreciation limits based on their size. Passenger cars have a total depreciation limit of $3,160, while trucks and vans have a limit of $3,460. Sport utility vehicles (SUVs) and trucks over 6,000 pounds, however, don’t have this depreciation limit- and the full $25,000 Section 179 deduction can be used for these vehicles. This gives you the biggest tax deduction when you buy a vehicle.
If you use your car for your business your CPA has probably told you to track your mileage. The reason is that there are two way to calculate the auto related costs for your car- actual expenses and standard mileage rate- and both rely on knowing the number of business miles you drove for the year. The great thing here is the IRS lets you chose the method that leads to a greater deduction.
You can keep track of and deduct the costs for actual auto expenses. These expenses would include gas, oil, repairs, tires, insurance, registration fees, licenses, and lease payments. If you use your car for anything personal your deduction is reduced. The way to calculate your business use is to track your business and total miles for the year. For example, if you drove 10,000 for business and 15,000 total, your business use percent would be 10,000 / 15,000 = 66.67% and you would only be allowed to deduct 66.67% of all of your auto expenses.
Standard Mileage Rate
For 2014 the standard mileage rate for business is 56 cents per mile. To determine your auto expenses using the standard mileage rate you multiply the rate times the number of business miles driven. For example if you drove 10,000 miles for the year your auto expense deduction would be 0.56 x 10,000 = $5,600.
Have trouble keeping track of your driving? There are aps you can use to make it easier. Check out Triplog that tracks your rides using GPS.
With the economy as it is these days people might find themselves moving to find work. It is possible for these expenses to be tax deductible. Here is a guide as to how.
A Case of Two Tests
There are two tests that determine if your moving expenses are deductible- distance and time.
The distance test – your new work must be at least 50 miles father from your old home than your old job was from your old home; OR if you have no previous workplace or have been out of work or working part-time for a substantial amount of time your new job must be at least 50 miles from your old home.
The time test – Employees must work full-time for at least 39 weeks during the first 12 months immediately following your relocation. You do not need to work for the same employer for all 39 weeks and the weeks do not need to be in a row. Self-employed people must work full time at least 39 weeks during the first 12 months and a total of at least 78 weeks during the first 24 months immediate following your relocation.
You also need to make sure that your move is within 1 year from the date you first report to work for the new job. So if you move to a new area hoping to find work, hope you find it before 1 year passes!
Are We There Yet?
Haven’t met the time test by the time you need to file your return? You can still take the deduction for the tax year in which you moved if you think you will satisfy the time test during the following tax year. If you don’t take the moving deduction for the tax year in which you moved and meet the time test during the following tax year, you can go back an amend your tax return to take the deduction. You must take the deduction on the tax return of the same year in which you moved.
What if you take the deduction for the tax year in which you move but then don’t end up meeting the time test? You have two options. Either take the amount of the deduction as “other income” the following tax year or amend the tax return on which you claimed the deduction to remove it.
What Moving Expenses Can Be Deducted?
You can deduction the cost of moving your household goods and personal effects and travel including lodging. Some expenses might include:
Costs of connecting or disconnecting utilities.
Cost of shipping your car and pets.
Costs to store and insure your stuff within any period of 30 consecutive days after the day your things are moved from your former home and before they reach your new home.
There are many items that CANNOT be deducted, including the costs of meals while moving. You also CANNOT take a deduction for any expense that was reimbursed by your employer.
Moving expenses are deducted by filing Form 3903. You can find a copy of the form here. The deductible expenses are reported on Form 1040 (line 26 on 2011) and a copy of Form 3903 is filed with your return.