Question

Alvin is a self-employed sound technician who reports on the cash method and calendar year. Alvin has a shop in Austin, Texas, but he spends much of his time away from his shop traveling to and from various concerts around the country. Alvin leases a truck to move his equipment around the country and this year he spent $12,000 in lease payments and paid $18,000 for gas, oil, and repairs. Alvin keeps records of his personal use of the truck and he estimates that 6,000 of the total 36,000 miles put on the truck this year were for personal trips. What amount of these expenses may Alvin deduct as business expenses?

Answer 1

Alvin can deduct a portion of his lease payments and gas, oil, and repair expenses as business expenses. The deductible amount is $24,999.90.

Step-by-step explanation:

Alvin may deduct a portion of his lease payments and gas, oil, and repair expenses as business expenses. He can deduct the portion that relates to his business use of the truck. To calculate this, we need to determine the percentage of business use compared to total use. Alvin estimates that 6,000 out of the total 36,000 miles were for personal trips, which means 30,000 miles were for business use (36,000 - 6,000). This means that 83.33% (30,000 / 36,000) of the truck expenses can be deducted as business expenses.

To calculate the deductible amount, Alvin can multiply the total expenses by the business use percentage. With $12,000 in lease payments and $18,000 in gas, oil, and repairs, his total expenses amount to $30,000. Multiplying this by 83.33% gives a deductible amount of $24,999.90. Therefore, Alvin can deduct $24,999.90 as business expenses.

Answer 2

Business expense is $25,000

Step-by-step explanation:

Business related cost incurred by Alvin should be a proportion of the total cost. We need to estimate business related percentage of his activities and allocated business expense appropriately.

Alvin used an estimated 6,000 miles on his truck for personal use out of a total of 36,000 miles.

The percentage of business related miles= (36,000-6,000)/36,000= 0.833333

Total expenses= Cost of lease + Cost of gas, oil, and repairs

Total cost= 18,000+ 12,000= $30,000

Business expense= Percent of business related cost* Total cost

Business expense= 0.8333333* 30,000

Business expense= $24,999.99~ $25,000