I'm aware than when you claim 5 or more vehicles for a business, you must calculate actual expenses -- You can't take the mileage deduction.
This is probably a bit unique, because we put a LOT of miles on the cars but they just don't cost very much to maintain. In my case the mileage deduction is a pretty good deal. So much so that I would be better off taking the mileage deduction for only 4 vehicles than taking actual expenses for 5.
The question is: Although all 5 vehicles were actually used for business, is it legal to simply not claim one of them as a business asset, to my advantage?
A self-employed individual is required to report all income and deduct all expenses. Revenue Ruling 56-407, 1956-2 C.B. 564, deals with the issue of taxpayers not taking all allowable deductions in computing net earnings from self-employment for self-employment tax purposes. Rev. Rul. 56-407 held that under §1402(a), every taxpayer (with the exception of certain farm operators) must claim all allowable deductions in computing net earnings from self-employment for self-employment tax purposes.
On the same given day, no. (We don't have enough employees for 5 cars so that's not possible.) But the 5th car has been a spare, so it cycles in when other cars are being repaired. That might be a couple times a month given our high mileage. It's probably been used around 45 days total for the year, sporadically. Is that "at the same time"? Is it "in service" while it waits for other cars to break down? Maybe the answer is subjective. I wish I hadn't bought that 5th car. My business would be better off canceling service appointments when cars break down than to incur such a huge difference in deductions.
If they are never all used at once, you can still use the Standard Mileage Rate. See Example #1 in Publication 463:
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p463#en_US_2016_publink100033939">https://www.irs.gov/publications/p463#en_US_2016_publink100033939</a>
and page 13 here:
<a rel="nofollow" target="_blank" href="http://www.taxces.com/Docs/transportationrules.pdf">http://www.taxces.com/Docs/transportationrules.pdf</a>
TaxGuyBill and SweetieJean, You just made my day! This totally applies to me! This saves me around $10,000 in spendable cash this year!
A self-employed individual is required to report all income and deduct all expenses. Revenue Ruling 56-407, 1956-2 C.B. 564, deals with the issue of taxpayers not taking all allowable deductions in computing net earnings from self-employment for self-employment tax purposes. Rev. Rul. 56-407 held that under §1402(a), every taxpayer (with the exception of certain farm operators) must claim all allowable deductions in computing net earnings from self-employment for self-employment tax purposes.
If so, that's a HUGE bummer! It's a difference of $28,000 in deductions. This means expanding my business to the 5th car costs more money than it's worth. Actual expenses for 5 cars is ~$52,000, but the mileage deduction (for 4 cars only) is ~$81,000 (Yes, each car averages 37,500 miles per year.)
Looking at it another way, if I could have taken the mileage deduction for all 5 cars it would have been around $94,500 in deductions, vs $52,000 for actual expenses. With so many miles, the deduction is 82% more than actual expenses for each car.
Agreed, it's a bummer. But that's the rule. It is not legal to just ignore the 5th car.