In 2018 I formed an LLC. I am the sole proprietor and employee. May I claim mileage as a job-related expense on my personal return or must it be business vehicle expense

[gawa1]

If I can claim the miles as a job-related expense I will get a much bigger refund than if I have to claim them as a business vehicle expense.  I am not depreciating the vehicle.

[JulieR · Accepted solution]

No. As an employee of the LLC, you cannot claim job-related vehicles expenses on Schedule A of your Federal return because Tax Reform suspended those deductions for the tax years 2018 through 2025.  

[gawa1]

Thank you.  However, I then don't understand why TurboTax is allowing me to enter those expenses on my schedule A and calculating a much larger refund for me when I claim the mileage that way.

[Carl]

Because there are exceptions where one is allowed to claim W-2 work related expenses. Those exceptions are covered in IRS Publication 529 at <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p529.pdf">https://www.irs.gov/pub/irs-pdf/p529.pdf</a> on page 2 of that document. Second column under the heading "Unreimbursed Employee Expenses" Basically, the four exceptions listed are:
• Armed Forces reservists.
• Qualified performing artists.
• Fee-basis state or local government officials.
• Employees with impairment-related work expenses.

[gawa1]

Thank you. I didn't check any of the boxes saying that I was any of those things.  But I'll let it go - I'm still getting a refund.  What was the deal in the Tax Reform Act about LLC's getting 20% of their income lopped off?

[Carl]

I don't fully understand that 20% QBI myself. At least, not in depth. But my very rough interpretation is that up to a maximum of 20% of the SCH C taxable income is tax exempt. Exactly what percentages seems to depend on weather the business has employees or not, what they're paid and the such, and a few other things. I myself am self-employed with no employees, and got some kind of a QBI deduction that was less than 20%. When I started the research on it in chapter 12 of IRS Pubication 535, it was late, I was tired and basically I just quit my research. I also know that if certain qualifications are not met, then one doesn't qualify for any QBI. But like I said, I was tired at the time and gave up on the research. Maybe next year I'll dive back into it.

[Carl]

For starters, as the sole owner of the business, if it's a sole proprietorship or single member LLC, then you flat out can not be an employee of that business.  Under no circumstances will you ever issue yourself a W-2, a 1099-MISC, or any other type of tax reporting document with no exceptions.

All business vehicle expenses are claimed on the SCH C, and nowhere else with no exceptions. In the program, you'll deal with all vehicle expenses under the Business Expenses section in the one labeled Vehicle Business Expenses.

[gawa1]

Thank you for your very gruff and condescending answer.  My question had nothing to do with W-2s or 1099-MISCs.  You could have eliminated your first paragraph and eliminated "and nowhere else with no exceptions" in the second paragraph and your answer would have been more than adequate and very helpful.

[mitchell7630]

Carl, regarding your answer, for 2018, under an LLC with multiple members, filing a partnership return Form 1065, with K-1 to the partners (members) are you still allowed to expense and depreciated the LLC vehicles within the Partnership return or do you need to take the vehicles out and report the vehicles on the individual members personal Sch C?

[Carl]

You can't do the latter anymore. The vehicle has to be a partnership asset and dealt with on the partnership return. Now if the member is a member of a partnership, I'm not all that privy to how it would relate to a SCH C, since SCH C is for a sole proprietorship or single member LLC only. But if the vehicle is used in a SCH C business then the vehicle is claimed/reported on that SCH C for it's use in that SCH C business. Would have nothing to do with the partnership however.
Basically, the use of a personal vehicle would require the member who owns the vehicle to make it a "capital contribution" to the partnership. I don't know how that works if the vehicle is not 100% business use though. @TaxGuyBill you got some insight on this?

[mitchell7630]

Carl, thank you.

[TaxGuyBill]

Does the Partnership own the vehicle?

Does the Partnership Agreement REQUIRE the Partner to pay for out-of-pocket for any vehicle expenses for the business?

[mitchell7630]

Partnership owns the vehicles.  Partnership pays for vehicle expenses (gas, oil, insurance, normal maintenance).  In the past, pre 2018, the partnership would charge back the partners for personal use of the vehicles based on the percentage of total miles driven, effectively giving us a breakdown of business vs personal miles,  multiplied by the total expenses for the given vehicle driven.

[TaxGuyBill]

The same rules apply.