Category Archives: Taxes

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

Reasons To Get A Tax Refund

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This is yet another year that I’m filing my income tax return…

I know that this year there is a good chance that I’ll have to pay taxes, so the motivation to do my taxes early, no longer exists as was the case just a few years ago.

Most financial advisers will recommend against withholding your income taxes to the extent that you get a tax refund back from the government.   I admit, I agree that from a mathematical perspective, it is smarter to get the money that you earn as fast as possible, and a refund would be the less preferable route.

But from a non-mathematical perspective there are many advantages of letting the government withhold your withholding money, and here are a few of the ones that I have found to be great reasons, and the reason why I let the government hold my income tax refund money for me.

Here are the reasons I preferred getting a tax refund by declaring zero allowances:

  1. Avoiding being hit by a huge tax bill all at once.  Where I was younger there was a time that I didn’t withhold my taxes like I do today.  After a big bump in pay, I suddenly found myself owing the government a lot of taxes with money that I didn’t have.  After that time, I started withholding the maximum amount possible.  Life has been more stress free going this route for my family.
  2. Motivation to file your taxes earlier.  When I would get a tax return, I had a solid reason to file as early as possible to get my money back.  Without such motivation, I’m now in the scenario where I have no motivation to file early, so much like last year, I have no motivation to file early this year…
  3. A easy “stress free” saving program.  Yes, my tax refund has paid for vacations and enables me to deposit that amount into investments.  At a time when most savings accounts only yield .25% (a fourth of 1%), it really doesn’t matter that government could hold you refund for half a year (half a year because your refund amount doesn’t exist at the beginning of the year, and it takes each paycheck to build that refund amount).

The point of this article is that there is more than one way to do things.  I like to take a stress free route with respect to my income tax withholdings, but if you have the discipline with money, the more mathematical approach would be a better route as long as you don’t spend it first.

Hope you did your taxes earlier than I am…

MR

A Small Startup Business Should Pay No Taxes For Two Years!

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I’ve been think about this for a while, and I think that startup businesses shouldn’t have to pay taxes for at least two years after starting a new business.

If you read the statistics on small business startups, you’ll read that at least 80% of small businesses fail during the first five years!  Well, no duh!  Having to pay taxes right of out gate is like trying to run a sprinting race while carrying some fat bloated guy on your back.

If you haven’t already tried your hand at starting a business before, read about the grief that a small business owner in California has to go through to start one via the article at Untemplater: Taxes Suck And Make Me Want To Shut Down My Small Business.

Sidney (the main blogger at Untemplater) is a very sweet individual, and make me smile most of the time I read her articles.  So it was a rare pleasure reading a rant on a tax topic that I feel similarly about.

That said, after reading her article, I now realize that from a tax perspective I don’t want to every incorporate in California!  Here is a snippet of her article that I want to discuss about why I wouldn’t want to do business in CA:

Even if you don’t have your own business, did you know that if you get a California tax refund, you have to report that refund amount as income the following tax year so they can make you pay taxes on that?! WTF. I do not appreciate that.

Wha-Huh?  Sidney writes that CA folks have to pay taxes on their tax refunds???  What kind of bizarre logic is that?  Apparently logic is not a strong point of the CA government, which is quite ironic since many of the largest tech companies are housed in CA.  Quite the paradox, eh.

Actually, these days, computing is so incredible cheap and powerful, taxes should be incredibly easy, versus the mess it is today.

So I think that it’s totally reasonable to have an incubation period for small business to promote growth, where they can operate tax-free for their first two years of existence.  And then instead of paying the full rate all at once, the tax collect on small business startups should be eased into the full tax rates.  So the taxes collected should just slowly be stepped up to what the normal rates are during the first 5 years.  Then, only after five years of existence (with certain income exceptions), would those start-ups have to pay the normal business tax rates.

Now of course income exceptions would exist!  If the small business makes over 1 million in profit its first year out of the gate, well…  it’s going to have to pay taxes in year two at the normal rates, effectively bypassing the incubation period for years two thru five…  The reason being would be that if you are profitable enough to generate at least 1 million, then you can afford the professional help with the taxes and other professional services to get your taxes done…

Now for the twist…

If over 80% of small businesses fail during the first 5 years, aren’t some of those business owners going to go get food stamps and other government help to live?  After all, so are taking a risk and putting it all in, so it only makes sense that after the fail they’ll need temporary help, no?  So I have to wonder if the taxes they collect during those first two years are going directly back into the failed companies owners through the system?

And if those small business startup that needed large capital borrowing requirements fail, doesn’t that lessen the amount the banks have to pay because of the huge loss from a small business loan that failed?  I’m thinking that the current model of taxing to death small startups means less of a tax stream for the government?  You’d think that the government would people trying to start a business a break in the beginning infant stages…

Just my two cents to add to Sidney’s fire!

Cheers,

MR

 

Why Taxing Dividend Income Hurts The Elderly

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Let’s say it’s thirty years from now, and you’ve been a solid middle-income earner your entire life.  You were able to put some money in dividend stocks and mutual  funds that pay a dividend.

With your dividend portfolio, you get by fairly nicely.  You might even be able to go on vacation every now and then.

But times have changed and even though you worked hard your entire life, the government and certain people in the population want to tax those dividends now because they view dividend income as a rich person’s income stream.  But what those who want to tax dividends at higher rates don’t realize is that there are also adverse side effects of doing this.

Believe it or not, but when you don’t have money in retirement and you are hunger, you still have to pay for the food somehow.  If your dividends income stream is cut because of higher taxes on them, then you might have to go back to work.  This in turn makes it harder for young people to get jobs, since the elderly and the young compete for the same entry-level jobs.

I have friends with retired parents who told me a few years ago that it was getting financially harder every year because of the cost of living and inflation.  You see, to them increases in gas prices and food have a direct impact on what they can afford.  I’m sure they aren’t going to be happy once they see that their small dividend portfolio provides less money because of the possibility of dividends being taxed.  I wonder if you’ll see them working at McDonalds soon?  Perhaps not, they getting pretty old.  It’s harder to work when you are older…

Dividends provide them with only part of their income steam.  Luckily they have pensions, and a Social Security income steams.

Too bad we won’t.

What do you think about taxing dividends at a higher rate?  After all, money to pay dividends is already taxed once as company income (double taxation anyone?)…

Share your thoughts,

MR