Monday, December 10, 2007

Auto Algebra & the 2008 Mileage Rates

June,

Awesome site and info! I am definitely looking forward to purchasing the book, Self-employed Tax Solutions.

I am in negotiations with my first client to become their marketing consultant. I will be leading all of the marketing, PR, communication and fundraising activities for a non-profit organization.

I will be leasing a new vehicle soon after the new year. The client has proposed to pay mileage reimbursement for any duties related to their business. I will be driving both the new leased car and my current, much older, high mileage vehicle. Would the tax benefits of driving both cars normally outweigh a monthly mileage reimbursement check from a client? We're probably talking over 200 miles per month for this particular client because I don't they will include mileage from my home office to this office.


If not, can I still hold off auto expenses for other clients and still receive reimbursement from this particular client?

I'm anxious for your reply. This is probably the final negotiating term before I get started.

Thanks a million!

Jason from Charlotte, NC



Congratulations on your new indie work, Jason. And thank you for your generous comment about my site.

I will try to simplify your situation and thereby make it applicable to a lot of indies. First I am going to assume you have read, or I suggest you read if you haven't, How to Calculate Auto Expense and How to Keep a Record of Business Miles on my website. Then you should know that the mileage rate allowed by the IRS for 2008 is 50.5 cents per mile.

As an indie, all the payment you receive ,whether fees or reimbursement for expenses, is part of your gross income. All expenses, whether they were reimbursed or not, are deductible expenses.

For example, if XYZ pays you a fee of $5,000 + reimbursement for 200 miles at 50.5 cents per mile [that's $101] your gross income = $5,101.

Were you to use the standard mileage deduction for your car you would deduct the $101 as a business expense to get to an income of $5,000.

Were you to use actual expenses, it would depend on the costs of running your specific automobiles. Could be more than 50.5 cents per mile. Could be less. So your income could be more or less than $5,000.

To say which is better, reimbursement or not you need to compare two things. Your actual cost of running your car and how much your fee would increase were you to accept a higher fee and no reimbursement.

You may have several clients and some may reimburse you, some may not. You may still deduct all auto miles, for all clients, using either method, as long as you claim the reimbursement in your income.

There are several posts on this blog about reimbursed expenses that you might want to check out.

There is a full explanation of transportation and auto expenses in my book, Self-employed Tax Solutions.


Best,
June

2 comments:

J said...

June,

Thanks for your advice. This really helped me negotiate the final details of the contract.

There are so many misconceptions about tax info for indies. You should here some of the things people have tried to tell me about what I can or cannot hold as business expenses...especially auto expenses.

Thanks again!

J

June Walker said...

Hi J,

You are welcome.

In 25 years I'll bet I've heard a lot more weird ones than you have!! I call them "old-husbands' tales."

They are a big part of the reason I wrote my book, Self-employed Tax Solutions. You might want to check it out.

Best,
June