Question

Under the actual expense method, which of the following expenses, if any, will not be allowed?

a.Auto insurance.
b.Interest expense on a car loan (taxpayer is self-employed).
c.Parking fines incurred during business use of a car.
d.Auto club dues.
e.None of these choices are correct.

Answer 1

Under the actual expense method, parking fines incurred during business use of a car are not deductible, while auto insurance, car loan interest, and auto club dues generally are.

Step-by-step explanation:

Under the actual expense method for tax purposes, certain expenses related to the use of a car for business purposes may not be allowed as deductions. Of the options provided:

1. Auto insurance: Auto insurance premiums are typically allowed as a deductible expense under the actual expense method.
2. Interest expense on a car loan (taxpayer is self-employed): Interest expenses on a car loan can also be considered deductible under the actual expense method, as long as the car is used for business purposes.
3. Parking fines incurred during business use of a car: Parking fines are not considered deductible expenses, regardless of the method used.
4. Auto club dues: Auto club dues are generally not deductible expenses.

Based on these options, the expense that will not be allowed under the actual expense method is parking fines.