2-29-08
Going Somewhere?
The accepted wisdom is that people are driving less because of high gasoline prices. My clients seem to be driving more, at least judging by the questions I get. Some are driving on out-of-town trips where they once would have flown; this is driven (sorry about the pun) by rising airfares, sinking on-time records and the increasingly dismal experience of airport security. In town, I find that I am driving more while both of my regular CTA Brown Line stations are closed for construction. I also suspect that last year’s endless transit funding crisis, featuring constant threats of a CTA shutdown or evisceration, led many to just drift back to their cars.
The questions that I am being asked suggest that some folks have created really clever schemes to figure their tax-deductible automobile expense. These are not accurate or acceptable schemes, but they are undeniably clever.
So let’s go back to basics.
Miles and Miles to Go
You could potentially deduct automobile mileage several places on an income tax return. Each starts from the same question: How many miles did you drive for business, or medical treatment, or charity, or to move to another city? That question is more complex than it seems, and the latter part of this column will be about the answer. But once you have the answer, all you do is multiply those miles by the appropriate cost per mile.
What per-mile rate is appropriate varies, depending on the purpose and, sometimes, your particular circumstances.
The rates for medical, charitable and intercity moving uses are generally designed to cover your incremental costs, that is, the direct out-of-pocket expense of driving those extra miles: 20¢ a mile for medical, 14¢ for charitable and 20¢ for moving. Those rates just about cover the gas (if that) at current Chicago prices.
In contrast, the rate for business miles is intended to cover the entire cost of owning your car—not just fuel, but also oil, insurance, repairs, license plates and the cost of the car itself (through lease payments or depreciation expense). You can calculate all of this out and use your actual cost per mile. Or you can take the easy path and use a rate the IRS publishes annually, which was 48.5¢ for 2007 and is 50.5¢ for 2008.
The IRS per-mile rate for business use is a fair representation for the average American driving his average car an average number of miles per year, while paying the national average prices for gas, repairs and insurance. If you drive well below that average number of miles, the per-mile cost of insurance and ownership increases dramatically. Add in premium gas and pricey in-the-city insurance, and your actual cost can be double the IRS rate.
Going Who Knows Where
Answering the “how many miles” question requires dividing it into two parts: out-of-town, and in-town.
Out-of-town is much simpler, once you’ve determined what is out-of-town and what is not. This may not be obvious.
Consider Milwaukee. It’s another city, in another state, with its own airport. Intuitively, that is out-of-town. From my office, it is about a 90 to 100 minute drive. But it takes just as long to drive to some of Chicago’s south suburbs and those are intuitively in-town.
The answer involves not intuition, but sleep. If you stay over—or you don’t, but a reasonable person would—you went out of town. Otherwise, not. Milwaukee can be either.
Figuring Out-of-Town Miles
Reset your trip odometer as you leave your house, and don’t reset it till you are back. That’s it. If you are out of town on business, all your driving is deductible. The only exception is if you have a “sub-trip”: for example, work might take you to Buffalo, and you wisely escape on the weekend to Toronto.
Figuring In-Town Miles
The general notion is that the ordinary cost of commuting to and from work is personal and not deductible. To accommodate those who occasionally leave their regular workplace, a rule provides that from your home to your first business stop of the day is personal, and that driving from your last business stop of the day back home is personal; everything in between, however, is business. Incidental personal stops such as lunch or the dry cleaners are ignored.
“Business stop” is a very broad term. It covers not just work or auditions, but also trips to the book store, to my office, to buy opening night gifts or to pick up sides. In short, any time you are spending tax-deductible money (or would, if they had what you want), and any time you are making money or doing something that might lead to your making money—these are business stops.
If you regularly work at home, your first or last business stop on any given day may well be at home. It rather depends on what you did before or after you got in the car. If you were at your desk, calling your agent or working on lines, that is a business stop. If you go out with the cast after a show, come home stinking drunk and pass out, that is not.
Please, don’t get greedy and claim you were working at home every single day before you went out and after you returned. You know it is not true, and the IRS does, too.
A Final Nag
If a tree falls in a forest and nobody hears it, I do not know if it still makes a sound. But I do know that if you drive someplace on business and do not log that information somehow, those business miles do not exist for tax purposes.
Just for the Asking
Every year during the income tax season, I offer free copies of my “Checklist of Potentially Deductible Items...” for those in the arts. If you want one, just call my office, or send an e-mail to checklist@gregmermel.com.
Are there money or tax questions you would like to see discussed in this column? Let me know, at 2835 N. Sheffield, Suite 311, Chicago, IL 60657, or call 773/525-1778 (888/525-1778 toll-free outside the Chicago area) or e-mail greg@gregmermel.com.
Greg Mermel is a certified public accountant whose clients in the arts range from individual performers to major theatre companies and suppliers. He has also been known to produce theatre.