Let’s talk about using an automobile in your studio. Now, many of you are already making deliveries, you’re going to the bank, you’re buying supplies. Almost everyone has to drive sooner or later for their studio. So you get mileage for driving your vehicle and each year that rate is set by the IRS.
For 2021 that’s 56 cents per mile, so you need to keep up with a mileage log to track where you went, what the business purpose was for that driving, and how many miles it was, along with the date of course. You’ll submit that and that will be part of your expenses for your studio. Now I’m often asked, “What if my studio bought the car?” “Can I deduct the whole vehicle?” “Can I just run it all through the business?”
Well, first off, in order for the studio to purchase the car, it will probably be more expensive. You would have to have financing through the business, which would be commercial financing. You’ll also be required to have commercial insurance and licensing and property taxes can differ by state, but you’ll probably pay a higher rate if it’s a business vehicle rather than a personal vehicle.
So let’s go through a little example, let’s say that you purchase a vehicle and you use it 75% for business. That’s based on the total mileage you put on the vehicle versus the business miles. Also note, commuting miles from your home to your studio do not count unless you have a home office, which is the primary place where you do the administrative work for your studio. You don’t qualify to deduct your commuting miles.
Back to our example, 75% business use. What does this mean? So let’s say that we buy a car for $30,000. If we have 75% business use, that means we can deduct 75% of the vehicle through the business. There are luxury car limitations. And when I say luxury, that means any passenger vehicle, basically, that’s less than 6,000 pounds GVWR that vehicle will be depreciated over several years.
For most luxury vehicles that are in the normal range and not over the top. You’re going to probably take about six to seven to eight years to fully depreciate that using the limits that are placed today. You’ll also take 75% of every other expenditure for the vehicle including gasoline, insurance, anything that goes along with your vehicle, expenses would also attach that 75% number.
So at the end of the day, what you’ve got to look at is would I be better off using the mileage rate or the actual rate. For most people who are driving a normal, kind of vehicle you’re probably better off and have far less hassle using the mileage rate. If you’re driving a very expensive vehicle or a very old vehicle that you have a lot of repairs on, then you may be able to use the actual income out to the goods.
Also, please note you can’t switch the rate, once you purchase a vehicle you have to use the same calculation method each year, going forward. If you buy that vehicle as an actual, and you depreciate it. You have to recapture that when you sell it, I’ll narrow it down for you unless you’re driving a very expensive vehicle or have some sort of a classic vehicle with a lot of repairs that are very expensive to maintain. You’re probably better off using the standard mileage rate, we’ll have far less headaches in the end.
If you were purchasing an SUV, a four wheel drive, that’s over 6,000 pounds GVWR, there may be some special circumstances if you’ll be using this over 50% for business use. Not going to dive into those today, but let me know if that happens to be your case and we can talk further. I’m Donna Bordeaux with PYOPAccounting.com. Please subscribe to our page to stay tuned to the latest and greatest news that we post as well as our Facebook page.
Donna Bordeaux, CPA with PYOPAccounting.com
Creativity and CPAs don’t generally go together. Most people think of CPAs as nerdy accountants who can’t talk with people. Well, it’s time to break that stereotype. Lively, friendly, and knowledgeable can be a part of your relationship with your CPA as demonstrated by Donna and Chad Bordeaux. They have over 50 years of combined experience as entrepreneurial CPAs. They’ve owned businesses and helped business owners exceed their wildest dreams. They have been able to help businesses earn many times more profit than the average business in the same industry and are passionate about helping industries that help families build great memories.