Question

Ryan is self-employed. This year Ryan used his personal auto for several long business trips. Ryan paid $2,800 for gasoline on these trips. His depreciation on the car if he was using it fully for business purposes would be $3,000. During the year, he drove his car a total of 15,600 miles (a combination of business and personal travel). (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)

a. Ryan can provide written documentation of the business purpose for trips totaling 4,680 miles. What business expense amount can Ryan deduct (if any) for these trips?

b. Ryan estimates that he drove approximately 2,225 miles on business trips, but he can only provide written documentation of the business purpose for trips totaling 1,450 miles. What business expense amount can Ryan deduct (if any) for these trips?

Answer 1

a)

Ryan can claim the direct cost of these trips, including gas ($2,800) and depreciation on the auto. However, the

deduction for auto use is limited to direct costs (such as gas and oil) and the pro-rata portion of indirect costs( such

as depreciation). the pro-rata portion would be calculated as the business percentage of total mileage ($3000*

(4680/15600)) which is equal to $900.

hence, Ryan could deduct $3,700.

b)

Ryan is allowed to deduct the cost of using his personal auto in his business activities only if he can substantiate the business use .ie. if he has records to substantiate the business use, Ryan can claim the direct cost of these trips

including depreciation on the auto (for the business portion of the total mileage ).

Ryan's total expense deduction would consist of depreciation and expenses calculated as follows

Depreciation = ((1450/15600)*$3000) = $278.85

Expense = ((1450/2225)*$2,800)= $1,824.72

Total Deduction = Depreciation + Expense = $2,103.57 rounded off to $2,104