On partnership's books, auto expense is gas cost. However, the deduction per mileage is larger deduction by $945. So, Equity is lower than assets by $945. How to fix?

[prkwork]

The 1065's P&L shows the auto expense greater than its cash usage by $945, resulting in Partners' Liabilities & Equity $945 lower than its Assets because the partnership expense lowers Partners' Equity but not Cash. The result is the Balance Sheet (Schedule L) is out of balance by $945. I would think there would be a ProConnect entry for this somehow, but I don't see it. How do I deal with this?

[sjrcpa]

Assuming your auto expense deduction is correct, the difference is an M-1 adjustment - expenses on tax return not on books.

[prkwork]

Entering that $926 does affect Schedule M-1 but it does not affect the Balance Sheet (Schedule L), where it is still out of balance by the $926. This is the issue here.

[sjrcpa]

Compare your tax return Balance Sheet to your trial balance and see what is off.

[prkwork]

The tax-basis Balance Sheet is out-of-balance by the $926. The tax return P&L has the additional $926 in expense, which reduces the tax-basis Net Income by that amount and the tax-basis Partners' Equity by that amount. However, as this is a non-cash expense, Cash and thus Assets on the tax-basis balance sheet are not reduced by that $926. So, Assets and Liabilities+Equity differ by the $926.

I appreciate that Schedule L is to be the book-basis Balance Sheet. So, do I need to override (somewhere) the software-calculated Equity and boost it by $926. Presumably, by that, the ProConnect entry of $926 as a Schedule M-1 item would then provide the reconciliation.

Is this correct? And so would I override on the Federal Balance Sheet input by adding $926 there?

[BobKamman]

I got lost when the amount changed from $945 to $926.  The partnership can't deduct standard mileage rate, it can only deduct the actual expense.  If the partner drove 2000 miles and was paid only $194 for gas, the partner may have a deduction on the 1040.  But on the 1065, the deduction is $194.  

[prkwork]

The partnership owns the vehicle in question and all of its mileage is business mileage. Are you saying that the partnership can only deduct the actual expenditures incurred ($427 in gas and registration) rather than the $1,353 from using $0.56/mile?

And then the partners would deduct on their personal returns the full $1,353--and presumably minus the $427 that passes to them through the K-1s (i.e., $926), Yes, even though this is not business use of a personal vehicle? Or should this additional deduction bedded to the K-1s (50% each for 50% partners)? is there a way to add that to their K-1s?

(The $945 figure was an error. It should have been $926.)

[BobKamman]

You are not depreciating the vehicle?  And it has no insurance?

[prkwork]

The vehicle was totally written off through bonus depreciation.

Apparently, there was no insurance in 2021.

[PhoebeRoberts]

You don't get to fully depreciate a vehicle, then swap to the standard mileage rate, even if you own the vehicle personally. 

[TaxGuyBill]

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@prkwork wrote:

And then the partners would deduct on their personal returns the full $1,353-

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Why would the Partners deduct anything on their personal tax returns???

As was noted above, there is no provision for Partnerships or Corporations to use the the Standard Mileage Rate.  And even if they could, the Standard Mileage Rate can only be used *IF* it was used in the first year, and you said they used Bonus depreciation in the first year.

[prkwork · Accepted solution]

Some more details: The vehicle was purchased in 2021 and fully written off in 2021 (bonus depreciation). So, use of standard mileage would be proper for this first year of ownership. However, you and others say that a partnership can never use standard rate. I see that that is true. This was my first time with a business-owned vehicle. This is something I should have known. Thank you all.

[BobKamman]

You may be right.  However, I think if someone uses standard mileage rate in the first year, then fully depreciates the vehicle using actual expenses and straight-line over the next, say, 10 years, they can then still switch back to standard mileage rate.  That's not what happened here, though.  The partnership is trying to use the Marie Antoinette Method.  "Have their cake and eat it too."  

And I haven't been able to find a source for any rule against a partnership or corporation using standard mileage rate, although maybe that's because it goes without saying.  

Here's something to ponder.  When everyone has an EV they plug in overnight to charge, how do they figure actual expenses?  

[prkwork]

From Google, TaxAct makes it clear:

Employees and sole-proprietors (filing Form 1040 Schedule C) have the option to use either the standard mileage method or actual auto expenses. Corporate and partnership employers may not use the standard mileage method to compute the auto expense for company owned cars. In other words, actual auto expenses are deducted at the partnership level. However, they may use the standard mileage rate to reimburse employees for business use of the employee's vehicle.

[qbteachmt]

"Apparently, there was no insurance in 2021."

Check their umbrella policy. A business likely has auto coverage somewhere. If they only have it personally, they are confused over how "company vehicle" applies.

Operating costs include gas, oil, registration, tires and other maintenance, repairs, car washes, etc.