Author Archives: Money Reasons

About Money Reasons

A offbeat personal finance blogger that comes from the tech world.

Is Auto Insurance Tax Deductible?

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Tax season FAQ: Is Auto Insurance Tax Deductible?

The world of taxes is one that most people avoid talking about. For roughly eleven months out of the year they may as well not exist – an evil we fear because we’re confused, or we’re confused because we fear. However, once spring rolls around and only a few weeks remain before the tax-filing deadline, people come out of the woodwork to investigate any and all ways to limit the size of their payment, or increase the amount of their refund. A few big questions that often comes to peoples’ minds are, when is auto insurance tax deductible, and in what scenario would it be beneficial to do a little more investigating?

Take a peak below for the tax season FAQ you’ve been looking for.

Personal Auto Use

If you are using your vehicle for personal reasons, including commuting to work, driving to the store, taking road trips, or even just keeping it parked in the garage, then your car is basically a luxury and not a necessity. It may help you with respect to making life easier, but that doesn’t mean it is tax deductible. In short, if your car isn’t being used in the course of operating a business or through donations of time with respect to volunteering then you don’t “have” to do it in the eyes of the IRS, and therefore you shouldn’t expect any sort of write off. Just remember that tax breaks come in the form of doing things to produce additional income, giving back, or necessity.

 

Small Business Vehicle

If you bought a truck for your contracting business, you primarily use the truck for business, and it has a nice company slogan and name right on the side of the vehicle, then this is a business vehicle. You may “technically” use the vehicle for personal use from time to time, but the primary use of the vehicle is for business purposes, meaning the operation and maintenance of the vehicle should be classified as a business expenses. The lines may become blurred slightly from time to time, for example if you work for a company during the day and have a side operation at night, or if you drive a small commuter vehicle as opposed to a huge contracting truck. That being said, if the vehicle is being used primarily for business use then you should have no problem with writing off the accompanying costs of keeping it going.

Specialty and/or Necessity Insurance

If you happen to be a delivery driver (or have some sort of job where driving is required), then you should be able to be reimbursed to some extent by the company you are doing work for. That being said, any time you are not reimbursed, or if you are a 1099 worker, you can always look to write off your expenses on maintaining that vehicle and paying costs including your car insurance premium. The specific deduction strategy will depend upon the type of work as well as the classification of your employment. The question “is auto insurance tax deductible?” is one that’s likely to continue getting asked, as according to insurance comparison and shopping company CoverHound, no definitive answer exists.

 

Sales and Support Roles

If you are in a sales role (which most small business owners are), then you’re already aware of all the conventions, business lunches, appointments, deliveries, and whatever else you have to do on a regular basis. As the IRS intention says, if you need to do the operation in the course of your business, then you are likely to be able to write it off. Because driving is a necessity of a small business owner (in most cases), you should have no problem writing off the majority (or however much you actually use the vehicle for business purposes) of your auto maintenance fees and insurance premium.

In summary, the most important thing to know when it comes time to determine whether or not your auto insurance and other car expenses can be written off is your classification and role. If you own your business and use your vehicle for that business, then there’s a good chance you can make some sizable deductions. If you don’t own your own business but you still frequently use your vehicle for work, then there’s still a chance you can write off those miles and related expenses. The most important thing is to keep records, so that you’ll be organized when the time comes to file.

Thanks,

Chase

How Debt Can Save You Money

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With a title like “How debt can save you money”, it sounds like I’m very confused, huh.  But read my story because it’s based my “real” life experience with a financial experiment that I’ve been living, for the past three years.  So this is not theory, this is my real story!

Back in December of 2012, I decided to give up my revered status of being “totally debt free” by going out and buying a car using an auto loan instead of buying the car outright.

toyota camry 2010

I didn’t need to do this, I had the money, but I preferred to invest the money into a stodgy (but what I considered “safe”) utility stock, which was obviously and luckily not a fossil fuel based company..

Well, I’m happy to report that on 1/28/2016, my investment vs “pay off the car outright” experiment has conquered a major milestone!  This huge milestone is that the value of my investment has now appreciated to double the cost that what I would have paid outright for the car!  This means that the capital appreciation in the stock is now greater than the initial cash outlay to buy the car outright, this includes the loan interest that I would have paid the bank that I took out the car loan. The feeling this instills beats the hell out of Christmas morning 2015!!

And the kicker is that I till have about 1 year left on the loan, so potentially the total gain could be even greater considering that the stock market has been less than stellar lately.

This was my first and most important milestone to cross, but there is a 2nd goal I have too.  While I consider my financial experiment a success to a huge degree, a secondary goal that I have is to develop a dividend income stream that could cover the monthly payments for upcoming future car purchases, especially the first car purchases for both of my kids.

This secondary goal is obtainable too with ideally, some smart planning but with some sacrifice and perhaps some small readjustments.

Current financial concerns spinning in my head:

  • The current dividend yield only would cover about a quarter of the yearly cost of a “used” but decent car for my 1st child.
  • I might need to reinvest my money into a new “still safe, but higher yielding” stock since my current stock investment doesn’t have enough of a dividend yield and there are some extremely attractive, higher yielding stocks in this currently down stock market.
  • For my kids, I might have to purchase cars of a good make and model that are older than five years old.  I’m thinking maybe a Honda Accord, or even that I’ll pass down my Toyota Camry.  Passing down the Camry is a post for another day though, but it is definitely a consideration.
  • There may be an overlap in my car purchases for the kids that I might have to financially alter my plans slightly.

I could go on listing concerns for a while, but doing so cheapens my win from this financial experiment, so I’m cutting it short.

The main takeaways from my multi-year financial experiment are the following…

  1. Three years and 1 month later from the start, the 10k loan I borrowed is now basically free.  It’s my break-even point also called the crossover point!
  2. Through some smart and lucky planning, my dividend-reinvesting stock investment has gained over 100% in capital appreciation.  In fact, on 1/28/2016, I was $333 dollars over my $10,000 “crossover” point, and as of 1/31/2016.  Yes, I got lucky with this experiment in that I recapped my investment so quickly, but even if it took longer, I think it was a good idea in the 2012-2013 stock market with such low borrowing rates.  If the market conditions was different back in 2012-2013, I might not have made the plunge though.
  3. Sometimes if the market is right, it makes more sense to invest you money instead of buying things outright with it.
  4. Another “sometimes” statement is that sometimes low-risk, reasonable debt can save you money if you have an equally compelling financial opportunity, as I had in this case.

So the past few days, I’ve been doing the happy dance…

I hope you enjoyed my “real life” example of how debt can save (or even make) you money!

Here is to a hopefully better “rest of the new year”!

Don

Am I Too Frugal, or Just Cheap

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First, for some great stories about real clever frugal tips, let me refer you to the site called Frugal Confessions that Amanda runs.  It’s a great resource for great frugal stories, and other smart, money-saving activities (which obviously I’m a fan of!).

I have a frugal confession to make:  I cancelled my cellular phone service over a year ago.  In fact, owning a smart phone is one way that I’ve saved money for years, ready my old article called “Frugal Confessions: I do not own a cell phone” back in 2011.

Motorola Defy XT Republic Wireless Phone

Am I insane?  Perhaps, but maybe not… let me explain…

When I was blogging more, the phone made sense because I used it daily for work.  Lately, I haven’t been up to snuff though and post sporadically at best, so I cancelled my service last year.

First, my job requires that I have a company issued smart phone.  The company smart phone is very restricted in usage and everything about it is monitored and logged.  I use to jokingly refer to it as an electronic lease, but lately, that analogy is pretty accurate!  Think Big Brother, but much, much worse since it also tracks my position via GPS coordinates.

Now I do still have my old smart phone, so I’m not totally flying blind since the apps on the phone work if I go through a wireless router (which is practically everywhere anymore except when on the road traveling).  So I do have apps like twitter, Facebook, etc that are still usable via my old smart phone…

But the real question is… Am I Too Frugal, or just Cheap?

I was frugal in the past because the cellular services were expensive, but these days I could get a decent and affordable cellular plan from a site like republic wireless and still receive a decent value for the money.  So these days, I think the too “Frugality vs Cheap” scale has tilted to the “Cheap” side a bit too much.  Especially considering you can get cellular plans that averages less than $20 at republic wireless.

I’ll probably take the leap… next year (maybe)…

Bests,

Don

 

Is Your Social Class Keeping You Poor?

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You’re from the wrong side of the tracks, and you know it.  You know your place, and it seems impossible to escape from your working class (or lower) background.  Resistance if futile, so why even try?

Every where you look it’s the same old, same old!!!  Tommy is unemployed and drinking a lot more than he use to, Tammy is an unhappy welfare mom with 4 kids, one of which is having problems with drugs, and another with the law… It’s just reality that you will never have money, prestige or happiness in your life.

SocialClass_UML

Not to be too condescending, but you are wrong!  The answer to the question “Is Your Social Class keeping you poor?” is an empathetic but absolute NO!  Why can I save this so assuredly?  Because I’m living proof that you can rise to a higher social class or two, and grow your wealth in the process.  So I can actually draw on my own life experience with respect to this, since I’m pretty much an expert since I already walked the walk.

I’m not going to write a book here, so I’ll summarize my thought on this to get to the meat of what someone may do to improve both your social class and grow wealth.

The first thing you need to do is believe that you can grow up to be rich (or in my case, at least better off) someday.  For me personally, that state of believing happened after reading the book called “The Millionaire Next Door” (by Thomas Stanley).  I wrote about this in Wealth Tip 8 – Believe Your Way to Wealth.  You’ll hear some people say that it doesn’t matter, but I’m here to say it did for me (although I’m not a millionaire yet…)!  This was the starting point for me in my wealth building process, and I consider it one of my first and arguably most important wealth building tools..

To be honest, there are plenty of books with a similar message…  Like the following:

  1. Think and Grow Rich, by Napolean Hill
  2. The Richest Man in Babylon, by George Samuel Clason
  3. The Wealthy Barber, by David Chilton
  4. and there are plenty of other such book…

I think I was fortunate in reading “The Millionaire Next Door” first and although some believe it dry in presentation, the content that was presented while a bit scientific and statistically verbose was the perfect content for my type of mind.

Okay, belief is only part of the equation, the next part is placating your culture while still needing to live in that same culture.  I found myself ignoring the most negative elements in my culture and that help, but I can only imagine that this could be very hard for others.  You might want to believe, but also keep it on the down low and keep it to yourself for the most part.  No reason to make yourself a target in your social setting.
It’s even easier today, if you decide to go the “slow” route to wealth.  Practically all of the books above that I listed preach similar things.  The most important being saving at least 10% of your income and invest that money in investments.  As I said it’s easier in that most financial advisers will tell you to invest in a basket of index mutual funds (or ETFs).  Then just year in and year out put that money in your wealth strategy (called your investment portfolio).  I won’t go into specifics, but that’s basically the typical path, and it has worked for me so far (did I mention that I’m not a millionaire yet? lol).  Okay, your mindset is now set to achieve wealth… It’s still kind of odd, and to be honest at first I didn’t totally believe it wouldn’t be possible me, but I still put in the effort.  I used an excel spreadsheet for my personal finances, and that made it easier to track and plan.

Coming from the social class setting that I did, I was more focused on the income/wage potential and getting hiring aspects of a major in college than I was in following my heart.  So in college, I decided to get a BS in Computer Science and to work in technology with a minor in business.  This path has provided me the money stream and knowledge that helped growing wealth.  This is just one path though, and although it helped, it’s not a critical element.

As for behaving class appropriate, well, even today, I’m still learning proper class etiquette, but you could probably just google it and jump start that part after you started to form some wealth.  I’ll leave that for you to develop…

Well, there you have it, trust me, you can beat your the social class you were born into, and rise to a higher social class if you want to.

What social class am I in?  Well, I like to consider myself a social class chameleon, and when there are just a few people I can get along in any small social group, except the top 5%.  I do work around folks that are in the top 5%, and while I respect them, I always feel a bit out of place around them.  I once went to lunch with a friend that was in that top 5% group, and was a little surprised when he told a waitress that I as smarter than I looked.  I laughed at his complimenting insult, After thinking about it passively for years, I think he actually meant it.  I’m not upset about it though, and I still get a chuckle on it.  I haven’t seen that guys since he travels overseas a lot and move to a pretty richy area…

When push comes to shove, I think when all the layers are pealed back though, we are all still in the class that we were born into.  This is why multi-millionaires say they are middle class… It’s because they are a product of their birth class.  And in thought and reality, we all are.

Thanks for reading,

Don

 

P.S. One warning!  I find that I have to continually learn to keep your social class progress developing in an upwards fashion.  And by learning, I mean both knowledge and your environment…  It’s not easy, but worth it… I hope.