Question

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

a. Car registration fees.
b. Auto insurance.
c. Interest expense on a car loan (taxpayer is an employee).
d. Dues to auto clubs.
e. All of these will be allowed.

Answer 1

Under the actual cost method, interest expense on a car loan for an employee is generally not deductible. Other expenses like car registration fees, auto insurance, and dues to auto clubs are allowed.

Step-by-step explanation:

The actual cost method of accounting for automobile expenses allows for various expenses to be deducted. These expenses traditionally include the car registration fees, auto insurance, and dues to auto clubs. However, for an employee, the interest expense on a car loan typically is not deductible. As per the U.S. tax code, the deduction of personal interest, such as that on a car loan, is generally not allowed unless the taxpayer is self-employed and the car is used for business purposes.