As you read this, I am attending an event in Orlando. Many of you know that I travel for different things after tax season. This month, I am traveling three times; one for networking, one for education (next week) and one where I am teaching other Enrolled Agents, CPAs and lawyers on tax issues (the week after in Reno. Heck, someone has to do it). So as Willie Nelson sings, “On the Road Again.” You can see the video (after waiting 4 seconds when you can bypass the ad) – https://www.youtube.com/watch?v=dBN86y30Ufc
As I was thinking about what to write in this letter, I realized that several clients and networking friends have asked me some interesting questions recently. I provided my answers, and I like to share some of them with you as they might answer some questions that you may had and never asked the right person (your Enrolled Agent, me).
Q1. If I lend money to a family member or friend and I am not paid back, can I deduct that as a bad debt?
A1. Unless you are in the business of lending money, the answer is no, at least not in full and maybe be not all in one year. A nonbusiness bad debt, when deemed completely worthless (after a rigorous attempt to collect) is considered a short term capital loss and is reported on your tax return like any other short term capital loss of an investment. You can offset capital gains with a capital loss, with a maximum of $3000 deduction, when these losses exceed gains. The remainder is carried forward to the next year. This topic will be part of my third book, which I am typing up, now.
Q2. Can I deduct my time when I work for or in my church or synagogue, etc.?
A2. The answer is no. Generally, if you could, what hourly rate would you use? If you are a high priced lawyer making $400/hour, would you use that? If you were a teacher, making $25/hour, would you use that? Where is the fairness in that if the lawyer and teacher did the same thing (teach Bible class on Sundays, for example)? It isn’t. You can, however, deduct it as a charitable donation (if you can itemize your deductions) if it is out of pocket expenses you incurred while you are doing your charitable work for the organization.
Also, if you travel for charitable purposes, you can deduct 14 cents per mile; and if you travel outside of your local area (there are mileage restrictions), you can deduct 100% of your meals while away, plus other costs. FYI: business meals are only 50% deductible, see the next question.
Q3. If I travel around town while conducting business, can I deduct lunch while I am driving; asked a lot by realtors and outside salespeople?
A4. The answer is, maybe. If it is just you, the answer is no. The rationale is that you have to eat anyway. However, if you are with clients or vendors, and business is discussed, or the lunch is just a continuation of the meeting, it is deductible, albeit at 50%. An example would be when a realtor takes clients around looking for a home to buy, then stops for lunch. It is deductible (again at 50%) even if no business is discussed as it is just a continuation of why the realtor was out with the client.
Q4. I use my car for 80% of business purposes. Can I deduct all my costs and get the miles, too?
A4. No, it is one or the other and only at 80%. The standard mile rate is 58 cents per mile in 2019 (it changes yearly) and is just for the business miles. The actual costs, including the cost of the car (or lease payments), gas, repairs, insurance, tags, etc. would be deductible at 80% of the total. You will need to document the business usage and total miles to come up with the percentage. When a client gives me the total miles that end in 0 for personal, business miles, or both, I tend to believe that they guessed, rounded it up or down or made it up. If I think that, so will the IRS.
I suggest getting an app (if you do not want to keep a manual log). I recommend (and I have no stake in this recommendation), Mile IQ (https://www.mileiq.com/). Several other companies also offer this service. Check out the article from “Save Money” – https://www.thepennyhoarder.com/save-money/mileage-tracker-apps/ for a discussion on several of these apps, including Mile IQ.
Do you have any questions about tax or resolving a tax issue? Please contact me sooner rather than later.
If it’s a quick question with a quick answer, I have no problem answering you.
If you have a family member, friend, or colleague who can benefit from this Q&A, please pass it along.
So until next time,
Jeffrey “The Question and Answer Man” Schneider, EA, CTRS, ACT-E, NTPIF