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DOCUMENTING BUSINESS USE OF YOUR PERSONAL AUTO!

If you use your personal vehicle for your work, you may be able to write off the costs on your tax return.  To qualify you must use your car in your own business.  You must maintain adequate records to prove your business use.  If you can meet these requirements, then your auto expenses may be deducted.

Substantiating or not adequately documenting the business use is where most taxpayers find themselves in trouble.  (The IRS is really focusing on this area during an audit.)  If you claim a business expense deduction for your vehicle without proper documentation, you can probably expect the IRS to disallow the deduction in an audit.  You shouldn’t assume the IRS would compromise and allow your deduction based solely on your testimony.  The best evidence is a detailed log with an entry for each trip; however, diaries, trip sheets, expense reports or similar written evidence is probably adequate. 

Ideally, the record should be prepared at or near the time of the business use.  The best way is to keep a logbook handy in your automobile to record your miles as they occur.  Also, there are some very good mileage tracker phone apps that are free or very inexpensive.

If you plan on taking an auto deduction this year, be prepared to answer the following questions for each auto when you file your tax return, in addition to your daily mileage log.

1. Do you have evidence to support your deduction?
2. Is your evidence written?
3. What is the total business and total personal mileage for the year?
4. What was the beginning and ending odometer reading for 2023?

There are generally two methods for computing your auto expenses; the standard mileage rate method and the actual cost method.  Normally, you can use whichever method gives you the largest deduction.  Whether you’re using the standard mileage method, 65.5 cents per business mile for miles driven, or you’re writing off your actual costs, you will need to keep your daily mileage log.  Make sure you have all these totaled & documented before you come to see your tax preparer.

STANDARD MILEAGE RATES

Childcare Credit  For 2023, the Childcare Credit is 20% to 35% of your childcare expenses and is available for working parents who pay childcare for their children under the age of 13.  The amount of eligible expenses is $3,000 for one child and $6,000 for two or more children.  To be able to claim this credit, you must know the total amount paid to each childcare provider, the provider’s legal name and Social Security Number or Employer Identification Number, the provider’s address and phone number.

Childcare Excess Benefits: If benefits received are more than the amount that can be excluded, the excess is included in taxable wages on line 1, Form 1040 labeled “DCB”. Dependent care benefits are not subject to FICA and Medicare tax even if excess benefits are included in taxable wages on line 1, Form 1040.

Office In Home Expenses will be allowed for the place of business which is used by the taxpayer for the administration or management activities of the taxpayer’s business if there is no other fixed location of the business where these activities are substantially performed.  The home office must still be used regularly and exclusively, but no longer needs to be the place where the income-producing activities take place.  You may use either the standard method or simplified option.

Substantiating Your Expenses Business meals purchased at any venue are still subject to the 50% limitation, unless one of the 100% provisions apply.  100% provisions are:

• Food and beverages for company holiday parties
• Food and beverages given to the public
• Dinner for employees working late at the office if it is on the employer’s premises and outside of normal business hours of the employer.

The taxpayer (or employee of the taxpayer) should be present and the food or beverages are not considered lavish or extravagant. Proper substantiation of your expenses is still required. You should substantiate each of the following four elements of your expense: 

1. Time & Place
2. Business Purpose
3. Dollar Amount
4. Business Relationship

In addition to recording this information you will need receipts, tickets or other supporting documentation for expenditures of $75.00 or more (other than lodging).

THE EARNED INCOME CREDIT

You may be eligible for earned income credit this year if:

1. Your earned income is less than $46,560 ($53,120 if MFJ) and you have one qualifying child. You may be eligible to receive up to $3,995 of EIC.
2. Your earned income is less than $52,918 ($59,478 if MFJ) and you have two qualifying children.  You may be eligible to receive up to $6,604 of EIC.
3. Your earned income is less than $56,838 ($63,398 if MFJ) and you have three qualifying children.  You may be eligible to receive up to $7,430 of EIC.
4. Your earned income was less than $17,640 ($24,210 if MFJ) and you are at least age 25 and under age 65. You may be eligible to receive up to $600 of EIC.  

Failure to meet qualifying child tax ID requirement. Effective for  all  tax  years  beginning  after  December 31, 2020, taxpayers who have one or more qualifying children that do not meet the taxpayer identification number requirement are allowed to claim the Earned Income Credit under the no qualifying children rule.

Investment Income Limit. The investment income limitation for the Earned Income Credit is increased to $11,000.

NOTE:  Please bring some sort of documentation for each child indicating they lived with you in 2023, i.e. school record, medical statement, piece of mail, etc.

A Qualifying Child of More Than One Person.  If a child meets the rules to be a qualifying child of more than one person, only one person can treat that child as a qualifying child and claim the EIC using the child.  You and the other person can decide who will claim the credit using that qualifying child.  Ask your preparer at Tax & Accounting Plus for details.

Gift Exclusion.  The annual exclusion for gifts made to a donee during 2023 is $17,000 and will increase to $18,000 for 2024.

Day Care Providers.  Family day care providers can choose to use a standardized rate to claim a deduction for meals.  The rates are Breakfast – $1.66, Lunch/Dinner – $3.04 and Snack – $.97. The standard rate is allowed for up to 1 breakfast, 1 lunch, 1 dinner & 3 snacks per day per child, provided the meals & snacks are actually purchased & served.