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Please help with car write off

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  • #16











    I was planning to deduct the costs of commuting since I have a home office.  That is, all commuting would be work to work.  What am I missing? 
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    This is kind of dicey; I would have a difficult time justifying the cost of a luxury car as an ordinary and necessary business expense. Is this your full-time job or a side gig?

     
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    Side gig.  I would have my typical W2 doctor income plus 1099.  I would deduct all the business expenses on the 1099.  I do not think anyone would argue that a Hummer is ordinary and necessary, but people were definitely successfully deducting them.
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    Is your side gig in medicine? And are you still making the bulk of your money by seeing patients?

    You can deduct anything you like until the auditors come knocking. If approaching a grey area, I would definitely seek the advice of a CPA.

    FWIW, my husband had a similar scheme that got shot down by our CPA. He does telemedicine from his home office and then drives to different offices/hospitals to see patients. He figured that because it’s work place to work place travel, this would not count as a commute and he could deduct his substantial lease payments (car in the same price range as a fully loaded Tesla)

    Our CPA did not feel comfortable with this because the bulk of his income was generated via surgery in the OR. This means the home office isn’t the principal place of business even with telemedicine consults.

    You may have a different experience with a more aggressive CPA. (I agreed with our CPA. This felt like gaming the system to me. I told my husband that it wasn’t worth the hassle of worrying about an audit. Lease the car, drive the car, enjoy the car, do an extra surgical case/month if cost is a concern, worry less.)
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    Similar experience/situation here, although the discussion was many years ago.  My CPA advised against it and said he would not sign my return if I chose to go that route (that got my attention, an AMA for accountants?).  I suspect some of my partners still try it.  Ultimately, the chance of an audit is low (heck, it's zero with the government shut down!).  Prince, for you specifically, I suspect you open yourself up to more scrutiny with that employee income, unless you are really rockin the 1099 money.

    So: Throw in a little 1099 income, then deduct a portion of your house, a bunch of expenses (that you definitely don't use for your W-2 job or non-1099 use), and a luxury car (plus electricity) for commuting (er, business travel)...I'm not sure why everyone doesn't do this.

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    • #17


      If I recall correctly, there was a IRS case involving an anesthesiologist who used his home office as an administrative office for his 1099 income as a doctor.  He did not see any patients at home and did not generate any income at home.  The IRS challenged him and he ended up winning, citing a long list of relevant managerial/administrative work he did at home for the business.  It does not seem that you have to actually see patients at home for it to qualify as a home office.  For my purposes, some of the income is made at home (for example via physician surveys and other medical consulting) so even if that were a requirement, it should still count as a home office.
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      We have somewhat strayed from the OPs original question, but you are partly correct. The issue with Soliman was not the home office deduction per se, but the ability to deduct mileage. This was his only work. The IRS challenged him on his HO and he lost. He took it all the way to the Supreme Court and lost. For a few years, this meant that the majority of your work had to be conducted in your HO to deduct your HO. This was, of course, ridiculous. Soliman could have rented a separate space and gotten the deduction - it was just the fact that it was his home that rendered it nondeductible.

      The IRS changed its mind with the TRA (Tax Relief Act) of 1997, stating that a home will qualify as a principal place of business if:

      1. The administrative or management activities of your business are conducted from home, AND

      2. There is no other fixed location where those activities are substantially conducted.


      My original concern was not with the HO, but with justifying that you were buying a Tesla for use as a business car, as per your statements: "Since I will be using this car [the Tesla] mainly for business purposes, I would like to write it off as a business expense using 1099 income." Possibly would pass on audit, possibly would cause you a lot of hassle and then pass anyway, and possibly would be denied due to the "ordinary and necessary" requirement. I have no idea but you need to know what you're possibly up against. And I like ENT Doc 's suggestion that a Tesla might actually be cheaper in the long run.
      Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #18


        Our CPA did not feel comfortable with this because the bulk of his income was generated via surgery in the OR. This means the home office isn’t the principal place of business even with telemedicine consults.
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        The HO only needs to be the principal place of business for the business that is conducted from the HO. The OP has a "day job" with a principal place of business but a second side gig which can have a separate principal POB. The proportional amount of income earned is not relevant if the side gig is unrelated to the day job.

        I am arguing both sides of this case. Maybe I should have been a lawyer.
        Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #19



          My original concern was not with the HO, but with justifying that you were buying a Tesla for use as a business car, as per your statements: “Since I will be using this car [the Tesla] mainly for business purposes, I would like to write it off as a business expense using 1099 income.” Possibly would pass on audit, possibly would cause you a lot of hassle and then pass anyway, and possibly would be denied due to the “ordinary and necessary” requirement. I have no idea but you need to know what you’re possibly up against. And I like ENT Doc ‘s suggestion that a Tesla might actually be cheaper in the long run.

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          I understand your argument, but I am sure you know that many/(?most) corporate cars are luxury vehicles.  Usually the executives and seniors managers are the ones who are afforded these perks.  How is buying a luxury car and deducting it with 1099 income any different?  If a luxury vehicle raises eyebrows with the IRS as far as "ordinary and necessary," you would think that the practice would not be nearly as widespread as it seems to be.  How big of an audit risk could it be if it is so common place?  What am I missing?

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          • #20





            Our CPA did not feel comfortable with this because the bulk of his income was generated via surgery in the OR. This means the home office isn’t the principal place of business even with telemedicine consults. 
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            The HO only needs to be the principal place of business for the business that is conducted from the HO. The OP has a “day job” with a principal place of business but a second side gig which can have a separate principal POB. The proportional amount of income earned is not relevant if the side gig is unrelated to the day job.

            I am arguing both sides of this case. Maybe I should have been a lawyer.
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            No, you should not have been a lawyer.  Too many of them.  :-)  So could one (in theory) have a side-gig with 1099 income, use a home office exclusively for the management/administrative component of this job, buy a car, track the mileage for 1099 use (assuming not reimbursed by the job), and deduct the car as an expense using a % mileage for work/total mileage basis?  It looks like the IRS instructions don't necessarily care if you buy a Tesla or a beater - certain depreciation limits are set if you're using the actual expense method vs the mileage expense method.  Is there a separate test for what is reasonable as an expense?  How is this determined objectively?

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            • #21






              My original concern was not with the HO, but with justifying that you were buying a Tesla for use as a business car, as per your statements: “Since I will be using this car [the Tesla] mainly for business purposes, I would like to write it off as a business expense using 1099 income.” Possibly would pass on audit, possibly would cause you a lot of hassle and then pass anyway, and possibly would be denied due to the “ordinary and necessary” requirement. I have no idea but you need to know what you’re possibly up against. And I like ENT Doc ‘s suggestion that a Tesla might actually be cheaper in the long run.

              Click to expand…


              I understand your argument, but I am sure you know that many/(?most) corporate cars are luxury vehicles.  Usually the executives and seniors managers are the ones who are afforded these perks.  How is buying a luxury car and deducting it with 1099 income any different?  If a luxury vehicle raises eyebrows with the IRS as far as “ordinary and necessary,” you would think that the practice would not be nearly as widespread as it seems to be.  How big of an audit risk could it be if it is so common place?  What am I missing?
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              There is no use giving my opinion on anecdotal evidence. I don't know that many/most corporate cars are luxury vehicles, either. In my experience, they are not. You are using the example of top corporate officials, not the corporate fleets that most businesses offer. And you are welcome to use your argument if and when you are audited. As I said, you may or may not have an issue with it. You are also stating that you are considering buying a Tesla because it's "ordinary and necessary" for a minor side job. I personally don't see the need, but I'm not you and I'm not the IRS, I'm just giving free advice on an internet forum based on my experience. It's worth what you're paying for it. (Actually, I happen to think it's worth a lot more, but consider the fact that you're not paying for it.)

              I'm not even saying I would not take the deduction if you were my client. I probably would, but I would give you all of the above admonition before doing so.
              Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #22


                No, you should not have been a lawyer.  Too many of them.    So could one (in theory) have a side-gig with 1099 income, use a home office exclusively for the management/administrative component of this job, buy a car, track the mileage for 1099 use (assuming not reimbursed by the job), and deduct the car as an expense using a % mileage for work/total mileage basis?  It looks like the IRS instructions don’t necessarily care if you buy a Tesla or a beater – certain depreciation limits are set if you’re using the actual expense method vs the mileage expense method.  Is there a separate test for what is reasonable as an expense?  How is this determined objectively?
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                That is correct. There is no objective determination and no separate test beyond what the regs say and court cases. That is why there are wildly diverging opinions and why it is somewhat of a crap shoot for many "gray areas". I don't mind taking a deduction if I believe there would be a chance of winning on audit, but I do discuss the pro's and con's. A physician with a DIY return deducting a HO and a Tesla is more likely to be audited than if the physician files a return prepared and signed by a good CPA. Not trying to be a scare-monger, just stating the obvious - the IRS pays attention to this stuff.
                Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                • #23





                  Our CPA did not feel comfortable with this because the bulk of his income was generated via surgery in the OR. This means the home office isn’t the principal place of business even with telemedicine consults. 
                  Click to expand…


                  The HO only needs to be the principal place of business for the business that is conducted from the HO. The OP has a “day job” with a principal place of business but a second side gig which can have a separate principal POB. The proportional amount of income earned is not relevant if the side gig is unrelated to the day job.

                  I am arguing both sides of this case. Maybe I should have been a lawyer.
                  Click to expand...


                  Sorry, I should have been more specific in my particular example.

                  My husband's "side gig" is also in medicine. He has scattered telemedicine consults that he'll do from home but the bulk of his time is spent operating in the hospital.

                  He was arguing that because there was a telemedicine component to that side gig and the home office was his principal place of business for telemedicine that a home office would be a legitimate deduction and then therefore would allow for actual car expenses deduction as he was traveling from workplace to workplace and no longer commuting.

                  Our CPA did not feel a car would be considered ordinary and necessary for a telemedicine gig. Furthermore, since 99% of the income derived from this 1099 job was via surgery, our CPA felt it would be inappropriate to classify the home office as the principal place of business.

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                  • #24


                    My husband’s “side gig” is also in medicine. He has scattered telemedicine consults that he’ll do from home but the bulk of his time is spent operating in the hospital. He was arguing that because there was a telemedicine component to that side gig and the home office was his principal place of business for telemedicine that a home office would be a legitimate deduction and then therefore would allow for actual car expenses deduction as he was traveling from workplace to workplace and no longer commuting. Our CPA did not feel a car would be considered ordinary and necessary for a telemedicine gig. Furthermore, since 99% of the income derived from this 1099 job was via surgery, our CPA felt it would be inappropriate to classify the home office as the principal place of business.
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                    Now I'm really confused. If 99% of his side gig is for surgery and he d/n/h an office at the various hospitals, still not sure why he w/n need a HO. And if he is traveling from workplace to workplace, wouldn't a car be necessary? In this situation, it appears to me that a HO would be ordinary and necessary to keep track of the assignments, handle bookkeeping, etc.

                    Again, a home will qualify as a principal place of business if:

                    1. The administrative or management activities of your business are conducted from home, AND

                    2. There is no other fixed location where those activities are substantially conducted.


                    You still need to set aside an area that is used exclusively for the business except for the storage of inventory, which d/n apply here.
                    Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                    • #25
                      Yeah I agree with Fox.  Sounds like you got bad advice.

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