Independent Contractor - Car Questions

[d9sccr]

New attending here and first time going through all this.  My wife and I need another car. We currently have 1 and had to sell the other prior to moving cross country.  Since moving in June, we have been borrowing a family member's car but would like to return it asap.

I am an independent contractor working under an LLC.  The accountant for the LLC explained we can "run the car through the company" as a tax-write off. It's my understanding that as of the new tax bill, both new AND used cars whether they be leased or bought outright, can be written off - meaning you're taxable income is reduced, correct?

Is my understanding of this correct: whatever you can "write-off" is essentially "discounted" at your tax bracket?

For numbers sake, assuming we buy a $100k qualifying SUV/truck and are in the 39% tax bracket, is the actual cost to us $61k?

[CordMcNally]

I'm not an accountant but it sounds like this car wouldn't be 100% for LLC use. You can run anything through an LLC if you want. But it becomes an issue when (not if) you get audited.

[Gamma Knives]

I'm curious to hear what tax experts say about this. My understanding (as a someone who is not an expert in taxes) is that the vehicle had to be used for business (and commuting between home and work didn't count as a business use). I also thought it was the depreciation that would be written off. I'm not sure what "run the car through the company" means. The company buys the car for you and gives it to you as part of your compensation? I believe that would count as taxable compensation (again not an expert).

[d9sccr]

Correct, but it's my understanding that you deduct the business % use only. You have to keep a mileage log to do so. Honestly, it'll be 90+% business use anyway. We don't drive much. Each of us typically puts 6-8k miles/yr on our cars. If we buy before the new year and use it solely for business at that point, that's the biggest write-off we can get.

Thanks for the response

[d9sccr]

To the best of my knowledge, you are correct regarding the business use. We are a large group of anesthesiologists and everyone has a home office of some kind.  The home office is justified via billing, chart review, CME, etc. We have had a few members audited for various reasons without issue in the past per the group's CPA.

My understanding is if you buy, the depreciation is what is written off.  There is an example in this link showing 95% of the car being written off over 4 years. https://www.financialsamurai.com/tax-rules-for-buying-a-vehicle-and-deducting-as-a-business-expense/

As far as "run the car through the LLC", we're paid on a K1 and unable to form our own LLCs. That was the verbiage the accountant used when I met with him regarding how the car is written off

[CordMcNally]

d9sccr wrote:

Correct, but it’s my understanding that you deduct the business % use only. You have to keep a mileage log to do so. Honestly, it’ll be 90+% business use anyway. We don’t drive much. Each of us typically puts 6-8k miles/yr on our cars. If we buy before the new year and use it solely for business at that point, that’s the biggest write-off we can get.

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Why would you spend a $1 to save $0.39?

[d9sccr]

CordMcNally wrote:

d9sccr wrote:

Correct, but it’s my understanding that you deduct the business % use only. You have to keep a mileage log to do so. Honestly, it’ll be 90+% business use anyway. We don’t drive much. Each of us typically puts 6-8k miles/yr on our cars. If we buy before the new year and use it solely for business at that point, that’s the biggest write-off we can get.

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Why would you spend a $1 to save $0.39?

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I'm not dumping a used car to lose $0.61 on whatever we buy. We need another car and I'm just making sure I understand the policy behind everything rather than running in blind.

[jfoxcpacfp]

Wet blanket here.

You can deduct mileage driven from your home to your work site unless your home is your principal place of business. That does not negate deducting your home office for regular and exclusive use of an area for administrative duties for your business, but what you are describing is commuting. If you work at multiple hospitals, my answer would change (somewhat).

You are getting third-hand knowledge from this CPA (ugh). I, too, am curious about the phrase “run the car through the company”. There is no running the car through the business to get a tax write-off, and what the CPA said smacks of a tax avoidance scheme. You can deduct business mileage by putting a basic "accountable plan" in place and keeping your car in your name (where it belongs) but "running through" is supposed to sound sneaky yet smart and sophisticated.

Saying that several others have been audited on this and come out fine? You have no clue as to the veracity of this statement but, again, it sounds like "insider knowledge", same as someone whose stock tips are all winners.

Statements like this steam me. Don't be gullible and don't play audit lottery.

[d9sccr]

jfoxcpacfp wrote:

Wet blanket here.

You can deduct mileage driven from your home to your work site unless your home is your principal place of business. That does not negate deducting your home office for regular and exclusive use of an area for administrative duties for your business, but what you are describing is commuting. If you work at multiple hospitals, my answer would change (somewhat).

You are getting third-hand knowledge from this CPA (ugh). I, too, am curious about the phrase “run the car through the company”. There is no running the car through the business to get a tax write-off, and what the CPA said smacks of a tax avoidance scheme. You can deduct business mileage by putting a basic “accountable plan” in place and keeping your car in your name (where it belongs) but “running through” is supposed to sound sneaky yet smart and sophisticated.

Saying that several others have been audited on this and come out fine? You have no clue as to the veracity of this statement but, again, it sounds like “insider knowledge”, same as someone whose stock tips are all winners.

Statements like this steam me. Don’t be gullible and don’t play audit lottery.

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Thanks for the response.

We work at several different hospitals and even more surgical centers although usually only one/day unless you're on call.  I have a scheduled meeting with him later this week and wanted to be prepared to discuss this.

I don't understand how the dozens and dozens of partners are doing this without repercussion though. This isn't a new practice and it certainly isn't the only practice in town doing this either. Hopefully I'll get better answers from him later this week.

[jfoxcpacfp]

As I said, if you are working at multiple hospitals and surgery centers, my answer changes somewhat. It depends on the facts, but I agree with the mileage deduction if you have no "main" place of business. Still don't agree with "run it through..." and still don't know what everyone else is doing.

One problem we have today is that audit rates are at historical lows so the perception that everyone is doing it and nobody is having any problems doing can lead to a false conclusion. Just because I don't know of anyone who has died in an airplane crash doesn't mean it will never happen because all planes and pilots and mechanics are 100% safe. It may just mean that it is very unlikely.

We haven't had a client audited in years, but that doesn't mean all our clients are perfect or that I think, if we had a client who were audited, I can say with 100% certainty that there would be no "dings". Just means that the IRS is overworked and understaffed and we remember only the audit horror stories we've heard. Therefore, we think we must be doing something right because it hasn't happened to us or anyone in our circle of friends.

[Gamma Knives]

d9sccr wrote:

I don’t understand how the dozens and dozens of partners are doing this without repercussion though. This isn’t a new practice and it certainly isn’t the only practice in town doing this either. Hopefully I’ll get better answers from him later this week.

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I think of it along the lines if someone told you can drive 55 mph on a road with a sign that says 45 mph. You can drive that speed and likely will be fine but there could be a risk of a citation.