||Ask the Small Biz Adviser
Writing off business use of
I am wondering about treating my motor home as a business
asset. I own a small, starving Internet business, selling RV-related
products. In the last year, during all of my four trips I have talked
with campground owners and other campers about purchasing my products.
I need to drastically reduce my adjusted gross income, and was considering
the depreciation, interest, storage and taxes related to my motor
The term "adjusted gross income"
is referred to on individual tax return forms 1040EZ, 1040A or 1040.
Since you are operating your own business, the
more appropriate term is "net profit or loss," which is
the earnings, after qualified expenses, from a business venture
and is reported on Schedule
C. This is the case if you operate a proprietorship. The Schedule
C is filed with the long 1040 form, onto which your business profit
or loss amount is transferred and added to any other income you
may have to arrive at your AGI.
If your company is incorporated, you would then
refer to "taxable income" for a C corporation on Form
1120, and "ordinary income" for an S corporation on
Regardless of the legal
type of company you operate, let us now consider the use of
the recreational vehicle for business expenses.
If the RV is used exclusively for business,
then you may deduct all expenses associated with its upkeep, maintenance,
travel and storage, as well as depreciation, interest on any associated
loan and vehicle taxes.
If, on the other hand, you use the motor home
for personal as well as business matters, then you may have a problem.
In this case, to deduct the business-related travel you should have
maintained a daily log on the mileage and use of the vehicle. This
log would differentiate between its use for business purposes or
personal travel. A very detailed description of deductible business
expenses can be found in IRS
Publication 535, Business Expenses.
Publication 463, Travel, Entertainment, Gift, and Car Expenses,
sets the limits on depreciation and other business expenses you
can apply to the vehicle.
Don't overlook your
Based on the content of your inquiry, I suspect you may
the venture out of your house. If that is so, then you may have
overlooked another set of deductible expenses. IRS
Publication 587, Business Use of Your Home, details home-related
expenses that may include:
- Mortgage interest expense
- Home improvement costs that affect
your office space
- Utilities, including electricity,
natural gas and water
- Home insurance premiums
However, keep in mind there are conditions under
which the home-related expenses can be deducted. Use of the home
office should include one or more of the following:
- Receiving clients.
- Billing and bookkeeping purposes.
- Receipt and storage of inventory.
- Ordering supplies.
- Forwarding orders or writing reports.
Finally, there is a formula for determining
how much of each expense can be applied against business income.
Determine the percentage of the total square feet under roof being
used exclusively for the business office. For example, you have
a 2,000-square-foot home and 200 square feet are used for office
space. Therefore, only 10 percent of those associated, qualified
expenses can be deducted from business income.
Be sure the read the details. In the example
above, only 10 percent of the mortgage expense can be applied. On
the other hand, any lawn-care expenses not directly associated with
the business cannot be deducted.
There are other issues of concern and opportunity,
but simply too detailed to address in this column. I suggest you
go to your local IRS office. The racks are full of publications
and forms. Don't forget to ask when the next small business workshop
will be held. They are commonplace throughout the United States
I wish you well.
-- Posted: Feb. 12, 2002