 QuickBooks Online 2023, taxes, business car and trucks, expenses, deduction, get ready to earn the skills needed to boost your bank books on up with QuickBooks Online 2023. Support Accounting Instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a YouTube page. We also include added resources such as Excel practice problems, PDF files and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. Here we are in our QuickBooks Online test company file using the account view as opposed to the business view you can toggle between the two views by going to the cog up top and switching the view down below. We've been looking at tracking the miles using the QuickBooks Online tracking tools primarily focused on giving information to sole proprietors for helping with their tax preparation and the automobile deduction using the mileage method. And in the account view this is located on the left hand side under mileage. This is the intro screen we saw last time when we skip that intro screen we see a screen like this. Now I just want to reiterate that most of the information on this screen is not really adding anything to the financial statements the balance sheet and the income statement but is more informational type of stuff. So before we understand how we can put this into our bookkeeping system to help us with our taxes we want to get an idea of the deductibility of auto expenses on the taxes. So let's talk about that now. Most of this information is coming from Publication 334 Tax Guide for Small Businesses for Individuals Who Use Schedule C Tax Year 2022 which you can find on the IRS website irs.gov.irs.gov. This is the first page of the Form 1040 noting that if you are a sole proprietorship you will typically have another schedule a Schedule C that will flow into Schedule 1 and ultimately flow in here to Line 8 of the Form 1040. This is a screenshot of a Schedule C which is a profit or loss from business the form typically needed to be added if you are a sole proprietorship and you can see it basically consists of an income statement income minus expenses. Our focus here is on a particular type of expense that being the auto deductions related to a vehicle type of expense and there's a couple different ways we might deal with being able to take that deduction which will have some implications on how we might be setting up our bookkeeping and tracking our miles within software such as a quick book. So we have car and truck expenses. If you use your car or truck in your business you may be able to deduct the costs of operating and maintaining your vehicle. You may also be able to deduct other costs of local transportation and traveling away from home overnight on business. Local transportation expenses include the ordinary and necessary costs of all of the following when we're looking at deductions related to a sole proprietor Schedule C type of business will often see the term ordinary and necessary for expenses which are basically deductions on the Schedule C. Those are the expenses that we needed to consume in order to help us to generate the revenue. Once again local transportation expenses include the ordinary and necessary costs of all of the following getting from one workplace to another in the course of your business or profession when you are traveling within the city or general area that is your tax home. So I have a few definitions involved here but generally the idea is in your general vicinity of your tax home you're doing you're traveling within that vicinity and they're kind of trying to carve out the concept of commuting and one reason they might be doing that is because if you were a W2 employee as opposed to a sole proprietor you don't typically get to deduct your commute to your place of employment. So that's what we kind of have to figure in when we're talking about the local transportation. So then in order to figure that we have to kind of determine what our tax home is to figure out what is going to be a commute and what might not be a commute right. Visiting clients or customers so obviously when you're going to a client or customer that's generally not going to be a commuting type of situation because now you're visiting a location that you're not commuting to on a regular basis or is your primary place of business. Going to a business meeting away from your regular workplace so you have your regular workplace note that your regular workplace you might have a home office for example but if you're working someplace other than your home office you would think if that was your primary place of work the commute to that office would be a commuting type of situation but if you go into another meeting that's not to that office then you would think that that would be a local transportation type of expense where you'd be tracking the miles and whatnot. So getting from your home to a temporary workplace when you have one or more regular places of work these temporary workplaces can be either within the area of your tax home or outside of that area. Local business transportation does not include expenses you have while traveling away from home overnight so the tax code kind of breaks up the type of expenses for travel such as driving your car for the local travel that's around your tax home and the longer distance travel that you might have which would mean usually that means that you're going to be spending the night you know outside of your local area for example. So those expenses are deductible as travel expenses and are discussed later under travel and meals so however if you use your car while traveling away from home overnight use the rules in this section to figure your expense deduction so in other words if you have the overnight travel then you might be using some other means to get there like an airplane or a bus or something like that but if you're using your car then you might be able to track the mileage in a similar type of fashion as we would be talking about in our quick book system. So generally your tax home is your regular place of business regardless of whether you maintain your family home it includes the entire city or general area in which your business or work is located. Example you operate a printing business out of a rented office space you use your van to deliver completed jobs to your customers so you can deduct the cost of round trip transportation between your customers and your print shop caution you cannot deduct the cost of driving your car or truck between your home and your main or regular workplace because that's basically the commuting costs right so these costs are personal commuting expenses and again you can kind of mirror that and think about it I think about it as though the tax code is trying to make it fair between the sole proprietor and the W-2 worker the W-2 worker doesn't get commuting deductions to commute to their place of employment so office in the home so then the question obviously will come up what if my home is my office right so then your workplace can be your home if you have an office in your home that qualifies as your principal place of business so for more information see business use of your home later. Example you are a graphic designer you operate your business out of your home your home qualifies as your principal place of business you occasionally have to drive to your clients to deliver your completed work you can deduct the cost of the round trip transportation between your home and your clients because obviously your home is your principal place of business in this case and you're driving to your clients and therefore you would think that would be a transportation something that you can deduct right which means we would track the miles for those type of trips so methods for deducting car and truck expenses so for local transportation or overnight travel by car or truck you can generally use one of the following methods to figure your expenses so here's where it gets a little tricky you've got the standard mileage rate and you've got the actual expenses now when we're thinking about the quickbooks system of tracking miles we would be thinking we're probably using the standard mileage rate which is quite common but it gets a little bit tricky when we use the standard mileage rate because we're probably deducting the normal expenses in quickbooks related to the automobile which includes you know gasoline and maintenance and that kind of stuff so we cannot take both the actual expenses and the mileage and use the mileage method we would then be doubling up on the deductions so therefore if we're using the mileage method so what we have to do from a quickbooks standpoint is say okay am I using the mileage method or am I using the actual expenses method if I'm using the mileage method how can I integrate the tracking of the miles to make the mileage method easy for me to to help my tax professional at the end of the year is the is the general idea and do I need to integrate that into my financial statements in some way shape or form so that's what we'll take a look at in future presentations so standard mileage rate so you may be able to use the standard mileage rate to figure the deductible costs of operating your car van pickup or panel truck for business purposes that's where the rate generally I believe is being pulled from when you're looking at the quickbooks system in terms of the rate that they were using to figure you know the benefits that you might get so the business standard mileage rate from january 1st 2022 to june 30th 2023 it's 58.5 cents per mile the business standard mileage rate from july 1st 2022 to december 31st 2022 is 62.5 cents per mile they actually divided it up in 2022 and then it's going to go up in 2023 and later in compliance or in alignment hopefully with inflation as inflation goes up these rates you would think would go up as well caution if you choose use the standard mileage rate for a year you cannot deduct your actual expenses for that year except for business related parking fees and tolls this becomes a bookkeeping problem because now when I actually pay stuff on a cashed based system which is many small businesses want to do they're going to be charging their expenses based on the bank feeds when things go out of their checking account when they're auto related we're going to be tracking those items for taxes if I'm going to use a mileage method then I have to I have to basically remove the expenses that were the cash actual expenses and replace it with the mileage method in some way except we might still be able to get some actual expenses on top of the mileage method such as parking fees and tolls so choosing the standard mileage rate if you want to use the standard mileage rate for a car or truck you own you must choose to use it in the first year the car is available for use in your business so in later years you can choose to use either the standard mileage rate or actual expenses one of the reasons I believe this is the case is because if you were able to put the car or truck on the books in the first year and take the actual expenses which could include depreciation and possibly accelerated depreciation then you can take a large expense in the first year and then switch to the mileage method which still gives you a pretty good deduction in following years so in order to stop that the the iris is going to say okay well you have you may have to choose you know you don't get to switch back and forth possibly if you're going to be taking the actual if you use the actual method right so if you want to use the standard mileage rate for a car or truck you own you must choose to use it in the first year the car is available for use in your business so if you choose to use the standard mileage rate for a car you lease you must use it for the entire lease period including renewals standard mileage rate uh not allowed you cannot use the standard mileage rate if you so this is when you can't use the standard mileage rate number one operate five or more cars at the same time number two claimed a depreciation deduction using any method other than straight line for example acres or makers in other words when you take the actual mileage uh the actual deduction method you might be able to take depreciation and makers is an accelerated depreciation method meaning you get to deduct more in the first year so that's what they're going to be skeptical of on the irs you take a big deduction for actual expenses in the first year including this big lump depreciation and then switch over to the mileage method which still gives you a significant amount of deduction and that seems like kind of double dipping uh on so that's why there's limitations three claimed a section 179 deduction on the car that's an accelerated depreciation in the first year which again you'd probably only do if you had if you were taking the actual using the actual method four uh claimed the special depreciation similar to 179 you would only do that it's kind of a form of depreciation if you were not doing the mileage method in first year five claimed actual car expenses for a car you leased or six are a rural mail carrier who received a qualified reimbursement all right so then we have the parking fees and tolls in addition to using the standard mileage rate you can deduct any business related parking fees and tolls so when we break out our bookkeeping and quickbooks then to try to figure out our taxes we might want to break out our items between parking fees and tolls because you know in their own account because those we might still be able to get even over and above the mileage method we're taking so you can see how this kind of influences possibly our bookkeeping here so parking fees uh you pay to park your car at your place of work or non-deductible commuting expenses okay actual actual expenses if you if you do not choose to use the standard mileage rate you may be able to deduct your actual car or truck expenses so how what are you going to do then you're going to ask your accountant to figure out which is better so if you qualify to use both methods figure your deduction both ways to see which gives you a larger deduction now oftentimes the actual method uh write-off method will give you the bigger deduction but that may only happen in year one and you're going to be using the car for five to ten years so you really kind of want to think about what the best deduction would be over the lifespan of the car which gets a little bit complicated but once you figure it out if you're using the actual method or the mileage method that could influence how how you're going to track your your miles within quickbooks so actual car expenses include the cost of the following so in other words these are the costs that you would have related to your vehicle if you were using the actual method as opposed to the mileage method this is the stuff that you don't have to track as as rigorously if using the mileage method instead of the actual method the big one is depreciation depreciation is a pain to calculate takes a whole another kind of form to kind to kind of do and it's not something that normal like small businesses often do in their sole proprietor bookkeeping it's got to be done by the tax software it's not too difficult for tax software to do but it's uh that's the one that's kind of a it's not a cash-based thing right you're not tracking it in your normal bookkeeping it's an accrual thing so garage rent gas insurance these are stuff that normally of course we would be tracking in our bookkeeping system lease payments licenses oil parking fees registration repairs tires tolls these are all things that except for the depreciation that we would typically see going through our checking account if using bank feeds and quickbooks and recording the expense to auto expense of some kind we might have separate subcategories breaking all this stuff out but and the insurance is also particularly kind of tricky because we might group that with other insurance like liability insurance but we probably want to group it more with the auto expenses because it may or may not be deduct deductible depending on the method that we're going to use and we might want to break out the stuff that could be deductible even if we're using the the mileage rate like tolls I believe that that that might still be deductible even if we are using the mileage rate all right so if you use your vehicle for both business and personal purposes you must divide your expenses between business and personal use this also becomes tricky so you can divide your expenses based on the miles driven for each purpose this is what quickbooks is basically helping us to do we're driving around and we can basically allocate you know the miles to business or personal example you are the sole proprietor of a flower shop you drove your van 20,000 miles during the year 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use including commuting miles you can claim only 80 80 percent 16,000 over 20,000 of the cost of operating your van as a business expense so if you're using actual write-off method like depreciation and so on you would have to then you know limit it to 80 percent right but if you're using the mileage method then you would use the business miles so more information for more information about the rules for claiming car and truck expenses you can see publication 463 this is on the IRS website you can search for it irs.gov irs.gov reimbursing your employees for expenses so you can generally deduct the amount you reimburse your employees for car and truck expenses in other words you might try to use this mileage thing on quickbooks for example to help determine how far your employees are driving or whatnot to try to track their miles and whatnot and you might be using that for a reimbursement of some kind of of that based on the miles right instead of actual expenses you're going to base it on how far they've driven you have some kind of reimbursement type of system you can imagine using quickbooks tool for that as well as although that doesn't look to be its primary objective and if you were to do that then when you pay them in quickbooks we would see the reimbursements right so we can track possibly miles determine the reimbursement amounts and then of course the expenses would be coming out of the checking account using the bank feeds and we can record them you know appropriately at that point so the reimbursement you deduct and the manner in which you deduct it depend in part on whether you reimburse the expenses under an accountable plan or a non-accountable plan so if that's applicable you can dive into those in more detail on the iris website you can start your search there for details you can see chapter 11 of publication 535 iris.gov iris.gov that chapter explained accountable and non-accountable plans and tells you whether to report the reimbursement on your employee's W-2