Question

Auto Expenses (LO. 2)

Cassandra owns her own business and drives her van 15,000 miles a year for business and 5,000 miles a year for commuting and personal use. She purchases a new van in 2018 and wants to claim the largest tax deduction possible for business use. Cassandra's total auto expenses for 2018 are as follows:

Gas, oil, and maintenance $6,560 Insurance 775 Interest on car loan 1,200 Depreciation 3,160 License 180 Parking fees and tolls (all business) 240

Determine Cassandra's 2018 deduction for business use of the van. (Note: The standard mileage rate for 2018 is 54.5 cents per mile.)

Round all amounts to the nearest dollar.

Cassandra can maximize her deduction by using the standard mileage deduction. Via this method, she can deduct $ for her van. Her other allocable expenses amount to $.____(answer here )_____

Travel Expenses (LO. 3)

Olga has to travel to Philadelphia for 2 days on business. She enjoys history and is planning to visit the Liberty Bell and other historic sites in the city. If time permits, she would like to make a side trip to nearby Gettysburg. A friend of Olga’s tells her, “The best part of traveling on business is that once the business is over, you can sightsee all you want and the cost is tax-deductible.” Olga, who is self-employed, has scheduled her trip for the Labor Day weekend so that she can spend 3 days sightseeing. Complete the letter to Olga which outlines the tax travel expense rules.

Dear Olga, I am writing to outline the rules surrounding the deductibility of business travel expenses. First, based on your activities, one must determine if the trip is predominately business or pleasure. To determine this, first determine the percentage spent on business activities. The percentage is calculated by taking the 2 days of business and dividing by the total trip days, or _(answer here ) %. Based on your business activity percentage, your transportation will not be deductible. Your other expenses would be deducted as follows: Lodging: allocated for business percentage only Meals: 50% of the allocated for business only Incidentals: allocated for business percentage only

Answer 1

Answer:	As this in first year Cassandra uses the van, she can either use standard mileage rate method or the actual cost method to calculate her deduction on the van.
	Deduction under both method would be calculated as follows:
	Standard Mileage Deduction:
	15,000 miles X 54.5 cents per mile	$                       8,175	(15,000*54.5/100)
	Add: Parking and tolls	$                          240
	Total deduction	$                       8,415	(8175+240)
	Interest expense	$                          900	($1,200*75%)
	Actual cost method Deduction:
	Total actual expenses (except parking, toll and interest)	$                     10,675
	Business usage percentage	75%	(15,000 miles/20,000 miles)
	Allocated actual cost	$                       8,006	($10675*75%)
	Add: Parking and tolls	$                          240
	Total deduction	$                       8,246	($8,006+240)
	Interest expense	$                     900.00	($1,200*75%)
	Since total deduction under standard mileage method is more i.e. $8415 than under actual cost method i.e. $8,246, it is better to opt standard mileage method.
	Parking and toll would be added seperately as it is incurred for business purpose. Interest expense under both method would be same.