Tax Question

[ANAO]

For any of you tax savvy CPA's, or anyone in a similar position:

As a "traveling salesman", I do plenty of commission-based 1099 business on my bike. Business meetings, client acquisitions and such. I also use the same bikes to get to work, where I am salaried.

How possible/dangerous is it to claim some bike expenses as deductions for my 1099?

Based in NYC, living in NJ.

Thanks.

[Mzilliox]

Seems reasonable, do you use a tax person or file for yourself?

I know plenty of folks who claim all their car related stuff, so why not bike?

[R3awak3n]

I don't have an answer but I commute to work everyday by bike and was trying to write some of that off ahha but my accountant said, nope. I am also 1099 and pretty much travel by bike for everything you said as well

[ColonelJLloyd]

Commuting from home to the office, no. Expenses related to client or site visits, yes. You don't have to explicitly describe the expense as bicycle related.

If you deduct the actual expenses it's no flag or audit risk or what have you. Same with a car, though, if you are planning to deduct part of the cost of the bicycle it should be listed as a business asset and depreciated pro rata to the degree of business versus personal use. Then, if you sell it it's a touch more complicated.

[ANAO]

Seems reasonable, do you use a tax person or file for yourself?

I know plenty of folks who claim all their car related stuff, so why not bike?

I do it all myself. That's why I'm trying to gauge the likelihood of having an audit done and the IRS laughing at a $4k bike as a "write-off" and handing me a hefty bill.

[R3awak3n]

Commuting from home to the office, no. Expenses related to client or site visits, yes. You don't have to explicitly describe the expense as bicycle related.

If you deduct the actual expenses it's no flag or audit risk or what have you. Same with a car, though, if you are planning to deduct part of the cost of the bicycle it should be listed as a business asset and depreciated pro rata to the degree of business versus personal use.

It is a bummer because I can write subway off, little but its doable but bike expenses, nope

[ColonelJLloyd]

It is a bummer because I can write subway off, little but its doable but bike expenses, nope

I don't have any clients who this would pertain to so I haven't looked into it, but I don't think it's that cut and dry.

[ANAO]

Commuting from home to the office, no. Expenses related to client or site visits, yes. You don't have to explicitly describe the expense as bicycle related.

If you deduct the actual expenses it's no flag or audit risk or what have you. Same with a car, though, if you are planning to deduct part of the cost of the bicycle it should be listed as a business asset and depreciated pro rata to the degree of business versus personal use. Then, if you sell it it's a touch more complicated.

How can I determine what percentage is used to ride with clients vs. leisure riding (the line is blurred there) vs. racing vs. commuting vs. anything else a bike can be used for?

Are you saying the full $4k would raise no flags, but $1k might?

[Nooch]

How can I determine what percentage is used to ride with clients vs. leisure riding (the line is blurred there) vs. racing vs. commuting vs. anything else a bike can be used for?

Are you saying the full $4k would raise no flags, but $1k might?

You'd do the same as if you were logging miles to record Personal Use of Company Car or driving expenses. I'd expect you to keep an app, log mileage, log date/time and type of 'driving'.

Really, you've got this all -- you just have to record the activities right in the ELMNT. The garmin, you know, you have the ride/race/train profiles -- you could add in 'Work' and that way you could pull it all together in strava/garmin connect/whatever. I'm sure the ELMNT has to have something like that, no?

[ColonelJLloyd]

How can I determine what percentage is used to ride with clients vs. leisure riding (the line is blurred there) vs. racing vs. commuting vs. anything else a bike can be used for?

Mileage would be the easy way. So, yes, you would technically be required to keep a mileage log.

Are you saying the full $4k would raise no flags, but $1k might?

No, I am not saying that. But, if you do everything correctly, in good faith and in accordance with the tax code the amount really isn't pertinent because what you will have deducted would be completely defensible. I wish I could give you an answer that you could use to easily complete your tax forms, but I really can't.

[ANAO]

You'd do the same as if you were logging miles to record Personal Use of Company Car or driving expenses. I'd expect you to keep an app, log mileage, log date/time and type of 'driving'.

Really, you've got this all -- you just have to record the activities right in the ELMNT. The garmin, you know, you have the ride/race/train profiles -- you could add in 'Work' and that way you could pull it all together in strava/garmin connect/whatever. I'm sure the ELMNT has to have something like that, no?

They actually did away with profiles. This is the first I'm hearing of a real need for one. Solid idea. I guess I could spend a few hours combing back over Strava and seeing which rides were spent with clients. But then what if I used multiple bikes throughout the year?

[Nooch]

They actually did away with profiles. This is the first I'm hearing of a real need for one. Solid idea. I guess I could spend a few hours combing back over Strava and seeing which rides were spent with clients. But then what if I used multiple bikes throughout the year?

That's why I'd say the one computer trick would be the ticket. Or, every time you're with a client, stop ride, start new ride, and as soon as you upload it, mark it as 'Client Time.'

I would go the route of claiming the mileage deduction based on the federal rate, if you have the details to substantiate it, and go from there. The actual expenses, no, but I'd treat the mileage the same as if I were driving. (Of course there should be a different rate than $.54/mile.)

Looking further into the tax code, it does seem to specify 'car,' so since you don't have comparable mileage on the car it might be hard to pull off...

2016 Standard Mileage Rates for Business, Medical and Moving Announced
IR-2015-137, Dec.17, 2015
WASHINGTON — The Internal Revenue Service today issued the 2016 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
Beginning on Jan. 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
54 cents per mile for business miles driven, down from 57.5 cents for 2015
19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
14 cents per mile driven in service of charitable organizations
The business mileage rate decreased 3.5 cents per mile and the medical, and moving expense rates decrease 4 cents per mile from the 2015 rates. The charitable rate is based on statute.
The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical or charitable expense are in Rev. Proc. 2010-51. Notice 2016-01 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

[Nooch]

Further (though layman) reading: http://washcycle.typepad.com/home/2008/04/your-bike-isnt.html

[Ken Robb]

How can I determine what percentage is used to ride with clients vs. leisure riding (the line is blurred there) vs. racing vs. commuting vs. anything else a bike can be used for?

Are you saying the full $4k would raise no flags, but $1k might?
You have to keep a log of every trip. Travel between home and office is commuting and not deductible. Travel from office to a business appointment is business travel and is deductible. As a Realtor for 36 years I learned to drive by the new listings closest to my home first thing every day. That distance was commuting/not deductible but from there to the office or other appointments I was doing business/deductible travel. MANY people can't be bothered to keep a log and if/when they get audited their auto/travel expenses are disallowed. I had an audit once and as soon as the auditor saw my log he approved all my auto-related deductions without questioning each entry.

Having said that I can't imagine that I would consider getting the potential deductions for business travel on a bike to be worth the trouble of record keeping.

[christian]

You have to keep a log of every trip. Travel between home and office is commuting and not deductible. Travel from office to a business appointment is business travel and is deductible. As a Realtor for 36 years I learned to drive by the new listings closest to my home first thing every day. That distance was commuting/not deductible but from there to the office or other appointments I was doing business/deductible travel. MANY people can't be bothered to keep a log and if/when they get audited their auto/travel expenses are disallowed. I had an audit once and as soon as the auditor saw my log he approved all my auto-related deductions without questioning each entry.

Having said that I can't imagine that I would consider getting the potential deductions for business travel on a bike to be worth the trouble of record keeping.

What Ken says is spot on. As long as you don't deduct the commute, and keep a good mileage log, it doesn't matter how you travel for business -- the actual expenses are deductible if not reimbursed by your employer.

[ANAO]

My question was more along the lines of, "Can I deduct these golf clubs, if their sole purpose is to drum up business on the golf course?"

Obviously, that is not my bike's sole purpose, but to start somewhere.

So if the bike cost $4k, and let's say 6 out of every 20 rides are with/to clients, or 30%, I would deduct $1,200? I don't know that the mileage log applies to bikes, per Drew's anecdotal article.

[ColonelJLloyd]

This sounds more like entertainment expense, which gets an automatic 50% haircut after you've established what portion of the expenses are business related. There are probably some parallel cases out there if your Google-fu is up to snuff. If I had to guess I'd say the IRS won them.

[ANAO]

This sounds more like entertainment expense, which gets an automatic 50% haircut after you've established what portion of the expenses are business related. There are probably some parallel cases out there if your Google-fu is up to snuff. If I had to guess I'd say the IRS won them.

Thanks, this is all immensely helpful. I'll try to play around in a bit.

[christian]

Don't confuse the cost of the bike with the cost of operating the bike.

The cost of operating the bike (lube, tires, chain, cassette, cables) is an operating expense. Can take that expense every tax year.

The actual cost of the bike can be depreciated via MACRS or (potentially) by electing to do a 179 deduction. If you do the former, you depreciate the cost of the asset, adjusted by percentage of business use of the asset, over the life of the asset.
Under a 179 deduction, you could take the full deduction in one year, but then you might have to reimburse for that deduction if you sell it for a non-zero gain.

In short, what you propose to do is totally legal, is done all the time for large physical assets and vehicles. I don't think it's worth doing to save a couple hundred bucks on a bike, but then that's what separates me from Mick Mulvaney and Donald Trump I guess.

[druptight]

Don't confuse the cost of the bike with the cost of operating the bike.

The cost of operating the bike (lube, tires, chain, cassette, cables) is an operating expense. Can take that expense every tax year.

The actual cost of the bike can be depreciated via MACRS or (potentially) by electing to do a 179 deduction. If you do the former, you depreciate the cost of the asset, adjusted by percentage of business use of the asset, over the life of the asset.
Under a 179 deduction, you could take the full deduction in one year, but then you might have to reimburse for that deduction if you sell it for a non-zero gain.

In short, what you propose to do is totally legal, is done all the time for large physical assets and vehicles. I don't think it's worth doing to save a couple hundred bucks on a bike, but then that's what separates me from Mick Mulvaney and Donald Trump I guess.

^This is good advice. I think the most important thing here is that if you're going to do this you shouldn't think of it as "crap if I get audited I broke the rules and now I have to pay up." You need to do your best to work within the tax code and make sure you have all your info lined up so that IF they come to audit you, you've got a defensible position under the law. The most important thing is good records for both all expenses, AND for the rationale of how you split up the expense. Easiest way is to have a bike whose sole purpose is commuting, then you deduct ALL expenses related to that bike including the depreciation expense.

The biggest issue I can imagine here is that with a car and the laws about odometers, it's very easy to have a solid ending and starting mileage for the year and it's a zero sum game. If you can provide your supportable "work" commuting they can subtract that from your total mileage on your odometer and come up with a good percentage to apply to your expenses. With a bike, you could have good support for a bike showing all your commuting miles in say Garmin, but there's no good way for the IRS to validate the TOTAL miles on that machine for a year because you could always just not garmin your personal rides to increase your commuting percentage. Not sure how all that would play out in a real life case with the IRS.

If you google around, people are doing this, there's chatter on other forums about it:

http://www.thechainlink.org/forum/topics/bicycles-and-the-irs-for-sole

[cnighbor1]

CAR Deduction's IRS allows $00.50 cents per mile and has my wife has a sale person drives 25,000 miles a years that $12,500 we can deduct against income
and her Jetta TDI 2003 with 375K keeps going
Bikes that would be interesting You would only be able to deduct actual cost of item replaced wouldn't you? Plus cost of bike over say ten years

[ANAO]

CAR Deduction's IRS allows $00.50 cents per mile and has my wife has a sale person drives 25,000 miles a years that $12,500 we can deduct against income
and her Jetta TDI 2003 with 375K keeps going
Bikes that would be interesting You would only be able to deduct actual cost of item replaced wouldn't you? Plus cost of bike over say ten years

Right. If I spend $4k on a bike and allocate 30% of the bike to time with clients, can I allocate $1,200/year over the course of 3 years, with $400 the final year and then all done? Is that Kosher?

I do NOT want to play games.

It seems people are saying the price of the item is not as relevant as the price per mile traveled. I don't know what to do.

[ANAO]

I found this:

https://www.irs.gov/publications/p535/ch01.html

Capital Versus Deductible Expenses
To help you distinguish between capital and deductible expenses, different examples are given below.

Motor vehicles. You usually capitalize the cost of a motor vehicle you use in your business. You can recover its cost through annual deductions for depreciation.
There are dollar limits on the depreciation you can claim each year on passenger automobiles used in your business. See Pub. 463.
Generally, repairs you make to your business vehicle are currently deductible. However, amounts you pay to recondition and overhaul a business vehicle are capital expenses and are recovered through depreciation.
Roads and driveways. The cost of building a private road on your business property and the cost of replacing a gravel driveway with a concrete one are capital expenses you may be able to depreciate. The cost of maintaining a private road on your business property is a deductible expense.
Tools. Unless the uniform capitalization rules apply, amounts spent for tools used in your business are deductible expenses if the tools have a life expectancy of less than 1 year or their cost is minor.
Machinery parts. Unless the uniform capitalization rules apply, the cost of replacing short-lived parts of a machine to keep it in good working condition, but not add to its life, is a deductible expense.

Personal Versus Business Expenses
Generally, you cannot deduct personal, living, or family expenses. However, if you have an expense for something that is used partly for business and partly for personal purposes, divide the total cost between the business and personal parts. You can deduct the business part.

For example, if you borrow money and use 70% of it for business and the other 30% for a family vacation, you generally can deduct 70% of the interest as a business expense. The remaining 30% is personal interest and generally is not deductible. See chapter 4 for information on deducting interest and the allocation rules.

[christian]

Right. If I spend $4k on a bike and allocate 30% of the bike to time with clients, can I allocate $1,200/year over the course of 3 years, with $400 the final year and then all done? Is that Kosher?

No. You buy a bike for $4k. You use it 30% for work. So $1200 is a business expense. You can deduct that portion against business earnings as scheduled depreciation over 3 years, so $400 ($1200/3) in depreciation each year. (This assumes the depreciation schedule for a bike is three years - it could be longer.)

In addition to this, you can deduct actual operating expenses (tires, gas, oil, chain lube etc.) Only for miles you ride for work.

[ANAO]

No. You buy a bike for $4k. You use it 30% for work. So $1200 is a business expense. You can deduct that portion against business earnings as scheduled depreciation over 3 years, so $400 ($1200/3) in depreciation each year. (This assumes the depreciation schedule for a bike is three years - it could be longer.)

In addition to this, you can deduct actual operating expenses (tires, gas, oil, chain lube etc.) Only for miles you ride for work.

Ahhhh. That makes a lot more sense.
How then, do we find the depreciation schedule for a bike?

[ColonelJLloyd]

I think you are confusing some concepts here (commuting, travel, entertainment). Lame answer, I know, but you need to consult a professional with the specifics. Note that the Internet is an inherently poor place for such advice as people are going to advocate or recommend aggressive practices they haven't really sussed out when neither their client nor their PTIN/professional reputation is on the line.

The mileage reimbursement rate (travel) is indexed in some fashion to the price of gasoline. I haven't looked into any cases or IRS guidance, but my inclination is that this deduction is for automobiles only. And only qualified travel at that.

But, I don't know if it's a valid entertainment deduction to any extent.

[christian]

You would be better off leasing a bike. Then whatever percentage of the bike is for business use, that percentage of the lease costs is deductible each month. Makes the accounting easier.

[christian]

How then, do we find the depreciation schedule for a bike?

Google. To wit: In Publication 946, the IRS presents a table setting out the depreciation period for various classes of assets. Bicycles aren't specified on this table, so they would come under "Personal Property with No Class Life," and are assigned a depreciation period of seven years. If you don't elect a Section 179 deduction, this means you can depreciate the cost of a bicycle over a period of seven years

[rcnute]

I think the ultimate answer is to make more money.

Ryan

[ColonelJLloyd]

I feel confident that a bicycle would be assigned a 5y tax life. I'm pretty sure section 179 and bonus depreciation would not be applicable if the business percentage of the asset (bike) was less than 50%, which I assume is the case.

Let's say it's 25% for illustration purposes. That's a total allocated cost of $800 per year (lets use straight line here). That's an entertainment deduction of $100/yr ($800x.25x.5) for five years for a total of $500. This doesn't consider a sale of the bicycle.

[christian]

But, I don't know if it's a valid entertainment deduction to any extent.Why would you treat it as an entertainment deduction? He's using it to ride to clients.

[ANAO]

Why would you treat it as an entertainment deduction? He's using it to ride to clients.

Yes, but I think 50/50 is riding WITH clients.

[christian]

50% of my day is conference calls with clients. My phone isn't entertainment. Believe. Me.

If you are coaching bicyclists by riding next to them on a bicycle, your bicycle is a work implement.

In short, there's no reason to consider any of this subject to the entertainment provisions in the tax code.

[ColonelJLloyd]

In short, there's no reason to consider any of this subject to the entertainment provisions in the tax code.

Post #16 is why I am considering this entertainment and not travel. He said "drumming up business" and riding with clients (which may or may not be deductible as entertainment).

Riding to a client's place of business may be considered travel or it may not be deductible at all and would be a separate expense if it were.

[christian]

Post #16 is why I am considering this entertainment and not travel. He said "drumming up business" and riding with clients (which may or may not be deductible as entertainment).
Ok that makes some sense, but in my strict view, any expenses associated with bicycle riding with anyone, not directly related to coaching, for pay, the other rider, is not deductible. Not even as entertainment. Expenses incurred while coaching, for pay, are deductible regardless of vehicle used. If he sold his bike, and bought a moped or a Ford Excursion, the fundamental tax treatment doesn't change.

But yea, you and I agree. I guess we've both run some businesses in our day! :)