Question

Ryan is self-employed. This year Ryan used his personal auto for several long business trips. Ryan paid $2,110 for gasoline on these trips. His depreciation on the car if he was using it fully for business purposes would be $4,800. During the year, he drove his car a total of 18,000 miles (a combination of business and personal travel). (Do not round intermediate calculations. Round your final answer to the nearest dollar amount.)

a. Ryan can provide written documentation of the business purpose for trips totaling 5,400 miles. What business expense amount can Ryan deduct (if any) for these trips?

b. Ryan estimates that he drove approximately 1,630 miles on business trips, but he can only provide written documentation of the business purpose for trips totaling 1,050 miles. What business expense amount can Ryan deduct (if any) for these trips?

Answer 1

a. Ryan can claim deduction for the following amounts :

1) Full deduction on direct cost of gasoline = $2,110

2) Pro-rata deduction for indirect depreciation expense = ((4,800*(5,400/18,000)) = $1,440

Therefore, total deduction = 2,110+1,440 = $3,550

b. Ryan's deduction in this case is calculated as follows :

1) Pro-rata deduction of direct cost of gasoline upto miles he can substantiate = (1,050/1,630)*2,110 = $1,359

2) Pro-rata deduction of indirect depreciation expense = (1,050/18,000)*4,800 = $280

Therefore, total deduction = 1,359+280 = $1,639

Note : Ryan can only claim deduction for using his personal auto for business purposes upto the miles he can substantiate for business use.