actual expenses, such as depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance, or vehicle registration fees. The standard mileage rate incorporates those expenses, eliminating the need for any fabricator to keep detailed records. As previously mentioned, businessrelated parking fees and tolls may be deducted in addition to the standard mileage rate. Fees for parking at the metalworking operation’s main place of business or tolls related to commuting to and from that main place of business are considered personal expenses that are, generally, not tax deductible. The tax rules, as well as the IRS’ guidelines restrict who may, and who may not, use the standard mileage rate. The standard mileage rate cannot, for example, be used if a fabricator:
Uses the car for hire (such as a
taxi);
Uses five or more cars at the same time (as in fleet operations);
Claims depreciation or a Section
179 deduction; or
Is a rural mail carrier who receives a qualified reimbursement. Naturally, if business use of the vehicle is less than 100 percent, expenses must be adjusted between business and personal use. Only the business use portion of each expense is deductible.
Proof by records
Although the tax laws are vague in this area, the IRS continues to stress the importance of keeping complete records to substantiate all
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items reported on the annual tax return. In the case of car and truck expenses, the types of records required depend on whether the fabricator claims the standard mileage rate or actual expenses. To claim the standard mileage rate, appropriate records would include documentation identifying the vehicle and proving ownership or a lease and a daily log showing miles traveled, destinations, and business purposes. For actual expenses, a mileage log helps establish business
use percentage. Metals fabricators should also retain receipts, invoices, and other documentation to show cost and establish the identity of the vehicle for which the expense was incurred. For depreciation purposes, they need to show the original cost of the vehicle and any improvements, as well as the date it was first placed in service. Metalworking businesses and employees
An employee’s personal use of an employer-provided auto is generally considered a taxable fringe benefit. Personal use, under our tax rules, is any use (including commuting) other than business use properly substantiated by the employer. An employerprovided auto is considered a working condition fringe benefit and, thus, excludable from the employee’s income, only if the business use is properly substantiated. An employee’s car expenses are deemed to have been substantiated if the payor (usually the employer) reimburses the employee’s expenses with a mileage allowance using a flat rate or a stated schedule that combines fixed and variable payments. At least five employees must be covered by such an arrangement at all times during the calendar year, but at no time can the majority of covered employees be management employees. Tucks and vans
Automobiles and other forms of transportation that our lawmakers believe might lend themselves to personal use (such as airplanes, trucks, boats, etc.) are “listed” property. As listed property, unless used more than 50 percent for business, the depreciation deductions are restricted. Tax deductions permit many fabricators to fully recover the cost of an automobile used in the business. In reality, many fabricators have discovered that a metalworking business Fabricator
January/February 2007