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Deducting Vehicle Expenses

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Actual Expenses vs. Standard Mileage Rate

If you use your car for business purposes, you may be able to deduct the cost of operating your car as a business expense. There are two ways to do this: you can use the standard mileage rate, or you can itemize your actual expenses.

The standard mileage rate is a fixed amount that the IRS sets each year. For the 2023 tax year, the standard mileage rate for business use is 65.5 cents per mile. This means that if you drive 100 miles for business purposes, you can deduct $65.50 from your taxable income.

To use the standard mileage rate, you must keep a log of all the miles you drive for business purposes. The log should include the date, the purpose of the trip, and the number of miles driven. You can use a simple spreadsheet or a dedicated mileage tracking app to keep your log.

You can also use the standard mileage rate if you lease your car for business purposes. However, if you lease your car, you must use the standard mileage rate for the entire lease period. You cannot switch to the actual expense method in later years.

If you choose to itemize your actual expenses, you can deduct the cost of all of the expenses that you incur in operating your car for business purposes. This includes the cost of gas, oil, repairs, insurance, depreciation, and any other expenses that are directly related to the use of your car for business.

To itemize your actual expenses, you must keep detailed records of all of your expenses. This includes receipts, invoices, and any other documentation that supports your expenses.

The standard mileage rate is generally a more convenient option than itemizing your actual expenses. However, if you can itemize your actual expenses and the total amount of your expenses is more than the standard mileage rate, you may be able to deduct more by itemizing.

Requirements for Taking the Deduction

To take the standard mileage deduction, you must meet the following requirements:

  • You must use the car for business purposes.
  • You must keep a log of all the miles you drive for business purposes.
  • You must own or lease the car.
  • You must not have claimed a depreciation deduction for the car in any previous year.

If you meet all of these requirements, you can deduct the standard mileage rate from your taxable income.

Calculating the Deduction

To calculate the standard mileage deduction, you multiply the standard mileage rate by the number of miles you drove for business purposes. For example, if you drove 10,000 miles for business purposes in 2023, you would deduct $65,500 from your taxable income.

You can deduct the standard mileage deduction on Schedule C of your Form 1040. If you are a sole proprietor, you will claim the deduction on Schedule C. If you are a partner in a partnership, you will claim the deduction on Schedule K-1. If you are an employee, you will claim the deduction on Form 2106.

Example

Let’s say that you are a self-employed consultant who drives your car 10,000 miles for business purposes in 2023. You keep a log of all of your miles, and you have receipts for all of your expenses.

To calculate your deduction, you would multiply the standard mileage rate of 65.5 cents per mile by the number of miles you drove for business purposes, which is 10,000 miles. This gives you a deduction of $65,500.

You would then report this deduction on Schedule C of your Form 1040.

Conclusion

The standard mileage deduction is a valuable tax break for taxpayers who use their cars for business purposes. If you meet the requirements, you should consider taking the deduction to save money on your taxes.

Supreme Court Allows IRS to Access Bank Records Without Notice

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In a 5-4 decision, the Supreme Court ruled on May 18, 2023 that the IRS can access bank records without notifying the owner of the bank accounts. The case, Polselli v. IRS, involved a taxpayer who owed the IRS $100,000 in back taxes. The IRS issued a summons to the taxpayer’s bank, seeking access to his account records. The taxpayer argued that the IRS was required to notify him of the summons before it could be served on the bank.

The Supreme Court disagreed, ruling that the IRS is not required to notify taxpayers of summonses issued for tax collection purposes. The Court held that the IRS’s ability to access bank records without notice is necessary to effectively collect taxes. The Court also noted that taxpayers have other avenues for challenging the IRS’s access to their bank records, such as filing a lawsuit.

This decision is a significant victory for the IRS and could have a major impact on taxpayers. The IRS can now access bank records without notifying taxpayers, which could make it more difficult for taxpayers to challenge the IRS’s access to their financial information. Taxpayers should be aware of this decision and take steps to protect their privacy.

Here are some tips for taxpayers to protect their privacy in light of this decision:

  • Be careful about what information you share with the IRS.
  • Keep good records of your financial transactions.
  • Be aware of the IRS’s ability to access your bank records without notice.
  • If you believe that the IRS has improperly accessed your bank records, you should consult with an attorney.

This decision is a reminder that the IRS has broad powers to collect taxes. Taxpayers should be aware of their rights and take steps to protect their privacy.

Senators Introduce Legislation to Raise 1099-K Threshold to $10,000

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Two US Senators, Sherrod Brown (D-OH) and Bill Cassidy (R-LA), have introduced legislation that would raise the threshold that would require someone to get a 1099-K form from $600 to $10,000. The 1099-K form is a tax form that is issued by payment settlement entities (PSEs), such as PayPal and Venmo, to sellers who receive more than $600 in payments through their platforms.

The legislation, called the Red Tape Reduction Act, would make it easier for small businesses and casual sellers to operate online. Currently, many small businesses and casual sellers are required to file a 1099-K form even if they only receive a few hundred dollars in payments each year. This can be a burdensome and costly process, especially for small businesses that are just starting out.

The Red Tape Reduction Act would help to reduce this burden by raising the threshold for when a 1099-K form is required. This would mean that fewer small businesses and casual sellers would need to file a 1099-K form, and those that do would only need to file a form if they receive more than $10,000 in payments.

The Red Tape Reduction Act is supported by a number of organizations, including the National Retail Federation, the National Association of Realtors, and the Small Business Administration. The legislation is currently being considered by the Senate Finance Committee.

If the legislation is passed, it would have a number of benefits for individuals. First, it would reduce the burden on small businesses and casual sellers. Second, it would help to reduce the amount of paperwork that is required to file taxes. Third, it would help to protect the privacy of individuals by reducing the amount of information that is reported to the IRS.

The Red Tape Reduction Act is a common-sense piece of legislation that would make it easier for small businesses and casual sellers to operate online. The legislation is supported by a number of organizations, and it is currently being considered by the Senate Finance Committee. I urge you to contact your Senator and let them know that you support the Red Tape Reduction Act.