Tax: Mileage Deduction Question

[TromboneAl]

Concerning DW's knitting income.

Let's say she drives 50 miles to buy yarn. She can deduct those 50 miles based on the IRS mileage rate.

What if she drives those 50 miles buys yarn and also buys a pack of gum?

Or let's say she drives those 50 miles, meets friends, has dinner, buys groceries and also buys yarn.

Do you deduct 50 miles in each case, judge what percentage was for business, or just decide whether the trip was "primarily" for business purposes?

 

[Running_Man]

You need to determine and document the business purpose of the trip. If you can show you drove 50 miles to buy yarn, you document that with receipts or store locations/etc. There is no reason to state other activities you performoned on the trip. Your concience decides what is legitimate business purpose.

I am assuming though the income is not considered "hobby" income.

 

[OAG]

She should keep a log (simple little notebook) and record her trips. Maybe 4 columns 1: Start mileage (odometer reading), 2: Return mileage (odometer reading), 3: Date of trip, and, 4: Purpose of the trip. The thing the IRS would like to see is documentation that does not look like it was made up the day before the audit. I would get one of those little notebooks (3X5 inches or so) and just have her fill it out every time and at the end of the year total up the miles and take the pages out and keep them with her Schedule C as back up. I believe she has to show a profit a certain number of years out of five not to have it declared a hobby. She does remit sales taxes (if applicable) and pay appropriate employment taxes on profits, doesn't she?

 

[LOL!]

For this to work, doesn't she have to drive a big Chevy Suburban and put the name of her business on the side of it?


Maybe buy yarn off the internet and avoid the whole question.

 

[FUEGO]

Do as OAG suggested and keep a mileage log. To make it look more real and contemporaneous, keep a blue pen, a black pen, and a pencil in the car and randomly use a different writing utensil to fill in the log. That will make it look more real.

And FYI, the requirement to make a profit in at least 3 of the last 5 years doesn't apply apparently if you are a domestic auto manufacturer or a domestic airline, so I would say classify your DW's business as one of those instead of knitting (maybe she was knitting cars??) so you are exempt from the last 3 of 5 test.

I just had a clever idea - why not show a $1 profit in each of 3 years out of the last five, then have HUMONGOUS losses the other two years. Although I think there was a tax court case that says you can't legally ignore deductible expenses if you are intentionally doing so to reduce your income tax.

(not a tax cheat)
(and I don't advocate tax evasion)
(just tax avoidance permissible by IRS regs and the US Code and legal precedent)

 

[TromboneAl]

Your conscience decides what is legitimate business purpose.

My conscience says that if she went to town to buy yarn and groceries, that she should deduct 50% or so of the miles for business.

She actually made a profit this year, $465 at this point, so I am searching for some additional legitimate deductions to get it under $400 so she can avoid a self-employment tax of $66.

Luckily, my jazz profit for the year was only $84.

IIRC, concurrent mileage records are no longer necessary. We have the dates and store locations for every non-Internet purchase, and know how many miles away they are.

 

[ERD50]

Concerning DW's knitting income.

Let's say she drives 50 miles to buy yarn. She can deduct those 50 miles based on the IRS mileage rate.

What if she drives those 50 miles buys yarn and also buys a pack of gum?

Or let's say she drives those 50 miles, meets friends, has dinner, buys groceries and also buys yarn.

Do you deduct 50 miles in each case, judge what percentage was for business, or just decide whether the trip was "primarily" for business purposes?

You're doing it all wrong T-Al.

50 miles for yarn - claim 50 miles.

50 miles for two things, claim 100.

50 miles for 4 things, claim 200.

I mean, you were conserving gas and reducing your carbon footprint by combining trips, and I'm sure that that is the kind of behavior this rule was intended to motivate. It's all social engineering with taxes, so you are just playing along. They made you do it.

You gotta get creative, what's the worst that could happen, you get audited and you say it was an "honest mistake" and maybe you have to pay the difference. What have you got to lose?


-ERD50 (who also doesn't encourage tax cheating..... until recently. I've had enough of the hypocrisy and playing the fool.)

 

[Martha]

Concerning DW's knitting income.

Let's say she drives 50 miles to buy yarn. She can deduct those 50 miles based on the IRS mileage rate.

What if she drives those 50 miles buys yarn and also buys a pack of gum?

Or let's say she drives those 50 miles, meets friends, has dinner, buys groceries and also buys yarn.

Do you deduct 50 miles in each case, judge what percentage was for business, or just decide whether the trip was "primarily" for business purposes?

I believe she can deduct the entire 50 miles. If she had to drive extra for the gum, she can't deduct that.

 

[Moemg]

What are the positives of her claiming this as a business rather than a hobby ? I know you can take the business deductions but anything else ? I sell on ebay but I consider it a hobby .What would I have to do to claim it as a business and would it be worth it ?

 

[target2019]

Have a separate credit card for business purchases. Only put business purchases on that card. Try to make the trip exclusively for business purpose.

You bought a pack of gum? An agent would laugh at that. However, if it isn't on the bill, then it doesn't come up at all if you're audited.

The long form Schedule C may be able to dislodge other purchases from memory that would apply solely to the knitting business. How about bank fees, shipping cost, packing material, storage cabinets, scissors, books, presentation binders?

 

[RE2Boys]

It the activity is a hobby, you must still declare your income (sales). Expenses are deductible on Schedule A under Misc Expenses subject to the 2% AGI threshold.

If its a business activity, you report all income and expenses on Schedule C and pay self-employment tax if profit over $400.

Thus for a hobby, you get to declare all income and may not get to declare all expenses.

RE2Boys

 

[Alan]

When DW worked out of the house doing computer programming she would need to make trips to visit sites, buy computer supplies etc. (she used to produce documentation along with the applications she wrote).

She kept a log book of all trips, and charged all expenses to a dedicated credit card. It worked well.

 

[SecondCor521]

Martha has it nailed, as usual.

If the trip is primarily for a customary and reasonable business purpose, deduct it, either using straight mileage or actual expenses. If the trip is primarily personal, then don't. If it's a tie, go with your conscience: Did she drive 50 miles for a pack of gum and happen to pick up some yarn, or did she drive 50 miles for the yarn and happen to pick up some gum?

If you keep good records, read the applicable rules carefully, and fill out your taxes with a good conscience, I think you'll be fine.

Another thought: You can go into your local IRS office and they have representatives there who will answer your questions in person to an IRS employee. You can even jot down their badge number. It's not the same as a private letter ruling, but I bet it would impress an auditor if you said that IRS agent #1234 gave you answer X and you filled out your taxes in accordance with X.

My 1.2 cents after taxes,

2Cor521

 

[Nords]

My conscience says that if she went to town to buy yarn and groceries, that she should deduct 50% or so of the miles for business.
IIRC, concurrent mileage records are no longer necessary. We have the dates and store locations for every non-Internet purchase, and know how many miles away they are.

If our main reason for leaving the house was to travel to our rental property, or to a store to buy something for our rental property, then we deduct the entire trip.

We also keep a spreadsheet with the date & store plus the mileage from both our home and the rental property. Much easier than keeping a log.

I think the IRS spends far more time chasing down millionaire's offshore tax shelters than they would a $466 yarn profit. So as long as she's not sending suspicious payments to the Cayman Islands you guys should be way under the radar horizon...

 

[RonBoyd]

What have you got to lose?

Well, the Interest and Penalties. But as Nords says... "Unless you are sending huge amounts to the Caymans..."

 

[ERD50]

Originally Posted by ERD50
What have you got to lose?

Well, the Interest and Penalties. But as Nords says... "Unless you are sending huge amounts to the Caymans..."

It's a calculated risk. Just like investing in a stock or bonds. They might go belly up, but on average you make money.

An awful lot of seemingly smart people in the news sure seem to look at it that way. By the time they catch you, the statute of limitations has run out on many of the "oversights", and you have a net gain.

Interest and penalties, just the cost of doing business - that must be how these guys/gals in the news look at it. They are not stupid people. I guess I'm the stupid one for not cheating ( I mean, making more honest mistakers and oversights).

-ERD50

 

[RonBoyd]

making more honest mistakers and oversights).

That's my story and I'm stickin with it.

 

[FUEGO]

1-2% chance of getting audited generally speaking. You lose only a 20% negligence penalty plus statutory interest if you do get audited AND you lose the argument with the IRS AND the amount in controversy is small enough that an appeal to tax court or elsewhere doesn't pencil out. The system is definitely rigged in favor of pushing the line as much as legally possible, and then a little bit more, as long as you don't go to jail.

 

[Bestwifeever]

If she gets audited maybe she can pay the penalty in mittens.

 

[mickeyd]

Or let's say she drives those 50 miles, meets friends, has dinner, buys groceries and also buys yarn.

Discuss yarn during dinner~~~

Ask check out gal at grocery store if she likes yarn/sweater~~~~

Write off entire 100 miles plus add 50 miles for the heck of it= 150 miles