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?

Question

Barbie

Business

4 May, 04:29

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?

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Answers (1)

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Shaun Valentine · Answer 1

Business expense is $25,000

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