Tax Prophet: FAQ March 17, 1996

Frequently Asked Tax Questions --March 17, 1996

This column, in slightly different format, originally appeared in The San Francisco Examiner Newspaper, Tuesday,March 17, 1996



Note: This exercise is for educational purposes only and is not intended to be legal or tax advice. Your particular facts and circumstances must be considered when applying the U.S. tax law. You should always consult with a competent tax professional with respect to your particular situation.

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  1. Question: I drive a company-owned automobile to and from work. My W2 contained a $300 miscellaneous income entry. Does this represent my personal use of the car? How was it calculated, and how should I report it on my tax return? [Answer]
  2. Question: Can I deduct campaign expenses from my election to our school board? [Answer]

  1. Answer to Question #1: Personal use (commuting to and from work) of a company car is a taxable fringe benefit. Your employer treats this as miscellaneous income and reports it on your W2 as part of your total wages; therefore, it is not separate or additional income on your tax return.

    Employers usually use one of the following methods to value such benefit: (1) a complicated "lease valuation" rule; (2) a cents-per-mile rule; or (3) a flat $1.50 per trip rule. Each are subject to detailed tax regulations.

    First, the lease valuation, in general, treats your use as an arm's-length lease transaction, then apportions the personal use on a daily basis. For instance, if the daily lease is $20 and the personal use portion is 25%, then your taxable fringe benefit is $5 a day.

    If the automobile is driven more than 10,000 miles in combined personal and business use and has an initial value of less than $15,500 (for automobiles placed in service in 1995), then the personal use is determined at $.30/mile. Thus, if you commute 10 miles each way, your daily personal use would be $6.

    The $1.50 per trip method is the easiest and, potentially, the least costly method to determine commuting expenses. To qualify, the employer must have a business reason (other than to compensate you) for having you use the vehicle for commuting. Business reasons may include: (1) advertising the employer's service or product, if the vehicle has a sign; (2) safe-guarding the vehicles during off-hours, if the employer does not have a sufficient parking facility; or (3) running business-related activities to or from work. In addition, an employer-provided vehicle for commuting because public transportation or walking is unsafe may be valued at $1.50 a day each way.


  2. Answer to Question #2: No. Expenses incurred in seeking public office are not deductible.

    The Supreme Court, in McDonald v. Commissioner, ruled that expenses for an unsuccessful campaign re-election where not incurred in a trade or business; therefore the expenses could not be deducted. Although the taxpayer in McDonald was defeated in his election, this decision has subsequently been applied to prevent winners from deducting campaign expenses.

    However, while in office a public official can deduct unreimbursed current expenses. For example, the IRS has ruled that a congressman's expense of lunch with constituents to discuss government business is deductible, unless the lunch involves a social visit or campaign matters.

    An elected public official can also deduct expenses for defending his position for his current term against a recall, because the public official is not considered a candidate for public office, nor seeking a new term. Therefore, these expenses are deductible as ordinary and necessary business expenses.

    A related question is whether political contributions are deductible. Political contributions to a candidate are neither deductible as a business expense nor as a charitable contribution. However, contributions to political, business or civic organizations to attract or host conventions (or a similar gathering to draw people to the community) may be deductible as business expenses. Such payments are deductible if made with a reasonable expectation of financial return commensurate with the amount expended. For example, a contribution to the Republican party by a San Diego hotel to attract its national convention would qualify as a business deduction.



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**NOTE: The information contained at this site is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information contained at this site.**