Question

Jackson, a self-employed taxpayer, uses his automobile 90% for business and during 2019 drove a total of 14,000 business miles. Information regarding his car expenses is listed below.

Business parking	$ 140
Auto insurance	1,300
Auto club dues (includes towing service)	180
Toll road charges (business-related)	200
Oil changes and engine tune-ups	210
Repairs	160
Depreciation allowable	2,850
Fines for traffic violations (incurred during business use)	320
Gasoline purchases	2,800

What is Jackson’s deduction in 2019 for the use of his car if he uses:

1. The actual cost method?

2. The automatic mileage method?

3. What records must Jackson maintain?

Answer 1

Actual cost method is a costing method in which actual cost incurred are used to determine total cost of production. Jackson's deduction in 2019 for the use of his car if he uses the actual cost method is:

Particular	Amount
Business parking	$140
Toll road charges ( business related)	$200
Auto insurance( $1300*90%)	$1,170
Auto club dues( $180*90%)	$162
oil changes and engine tune up ($210*90%)	$189
Repairs( $160*90%)	$144
Depreciation allowable ($2,850*90%)	$2,565
Gasoline purchase ($2800*90%)	$2,520
Total amount deductible	$7,090

Note:Fines for traffic violation not deductible.

b)The automatic mileage method:

Under this method individual purchases and receipts are not needed to be tracked for vehicle expense. Under this Mileage for the tax year is used to calculate the deduction. Under this method standard rate per mile is deducted. For 2019 the standard mileage rate is 58 % per mile.

The deduction in 2019 for Jackson if he uses automatic mileage method

= (58%* 14,000 miles) + $140 + $200

= $8,120 + $340

= $8,460

c) The records that Jackson must maintain are as follows:

For standard rate method:

• Written or electronic log of miles driven by the car.
• Location where the travel was mase.
• Dates on which the automobiles were used .
• The purpose of business.

In case of use of actual cost method, then in that case he should keep copies of all the receipts, cancelled checks, and bills along with the mileage log.

The records should be updated weekly or daily .