I bought a used car for my business in 2019. The business percentage use of the car is approximately 27% and less than $2500. Can I use de minimis election to expense the business portion of auto purchase or do I have to depreciate?
I am assuming you are not an employee who gets a W-2 except in the case of an S-Corp shareholder where the Corp owns the vehicle, if you fail the above the vehicle would be an employee business expense which is no longer deductible
no. a vehicle is listed property and info besides cost must be reported each year.
in addition vehicles used 50% or less for business purposes are not eligible for section 179 expense and must be depreciated over 5 years using the straight line method.
if you can deduct the costs, the standard mileage rate of $ .58/mile for 2019 might be better.
based on what you provided the depreciation deduction would only be $68 first year and if same % use in following years $135 years 2-5 and $67 year 6
$2500*.27 = $675 sum of above for the 6 years = $675
When you own a business and are claiming less than 100% business use of a personal vehicle, it is usually significantly better tax-wise to claim the per-mile deduction.
Can you clarify what assets are included under the de minimis safe harbor election?
I operate a SMLLC.
I will definitely do a comparison of actual expenses vs. standard mileage deduction cost. Deduction based on miles is about $638.
The car actually cost $3400, and at the 27% business use basis would be $918.
As a single member LLC, all vehicle use regardless of percentage of vehicle use, is claimed in the Business Income & Expenses section in the Business Vehicle Use section. Period. No de-minimus matters unless you are using your personal vehicle that is a qualified vehicle (such as an electric car) outside of the business. Remember, the IRS considers an LLC (single or multi-member) to be a disregarded entity.
based on the $918 depreciation for the first year would be computed $918/5 (allocated cost divided by 5 the straight line life). in addition you can only claim 1/2 year's depreciation the first year so. the above result would be divided by 2 so the first year depreciation would be $92.
in order to use actual costs which would also be prorated 27%, you need to keep accurate records. for that matter the IRS requires that yo maintain contemporaneous records for your business miles. here's what the IRS requires for business use
Your mileage log must include the starting mileage on your vehicle's odometer at the beginning of the year and its ending mileage at the conclusion of the year. Each time you use your vehicle for business purposes, you must record the following information:
Your mileage
The dates of your business trips
Places you drove for business
The business purposes for your trips
for the de mimimus rules see the following
https://www.irs.gov/businesses/small-businesses-self-employed/tangible-property-final-regulations
To understand why this is not correct thinking: "The car actually cost $3400, and at the 27% business use basis would be $918"
You still have the car; 27% of it is not gone. The Cost to buy it is not part of Expense, but was your expenditure.
Expenditure = you spent money and got something to show for it. Got Something For the Money = asset.
Expense = you bought or paid for something that also is gone, now, such as printer paper or electricity or stamps. The cost was used to generate your business income, so that makes it business expense.
The word "depreciation" is used to describe "the loss of Value of my asset over time due to the fact that the asset (vehicle) wears out over time (per the IRS = a few years for a vehicle)."
The IRS determines the "useful life" and that's why actual depreciation would be the "divide by 5" as explained in this topic.
Which is why, for a mixed use vehicle, tracking and reporting Mileage to see the mileage allowance often makes the most sense. That allowance or mileage rate is for ownership, operation, registration, insurance, maintenance, and general wear and tear on that vehicle, as an actual amount and not overall %.
For this: "Can you clarify what assets are included under the de minimis safe harbor election?"
Let's pretend your business is housekeeping, so that car gets loaded with your vacuum cleaners, a carpet cleaner, and cleaning supplies that are consumed.
Cleaning supplies = expense.
Purchase of vacuum cleaners and carpet cleaners are Assets that would typically qualify for de minimis expense, instead of needing to be tracked over time and only partially written down as Expense, as they wear out over time.
Hope that helps.