Legitimate deduction

[belva333j]

Hello,

I have a tax client who bought a $35,000 vehicle for his business. He did not have it insured yet, and  his daughter took it and got into an accident and totaled the vehicle. What portion is deductible on his sole proprietorship return? Can I claim the whole thing as a loss? I can't find any really good or detailed information on how to account for a partial or total loss on his Schedule C .(The daughter is 16 years-old).

Thank you

[BobKamman]

Would the client happen to be your husband, on a joint return?

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[PATAX]

Shipping off to the Johann Strauss Concerto? How Marrrrrrrrrrrrrvi.😉😁

[IRonMaN]

Ok, you got me curious.  How many business miles was the vehicle driven before his favorite daughter Crashalina took it for a spin?

[belva333j]

A. Not my husband.

B. Drove 226 miles before daughter crashed the car. 

C. Is any portion of it deductible?

[ljr]

How did they spend $35K on a car and not have insurance on it? If it was bought at a dealership how did it get off the lot without it? I'm just curious what state? I don't see a business loss here but . . . . . I guess the daughter will be doing a lot of free work for Dad's business to pay it off. 

[IRonMaN]

Someone buys a car, doesn't insure it and lets the 16 year old daughter take it for a cruise.  That doesn't sound like good prudent business decisions.  Are you good at singing and dancing?  You need to be if you are going to explain that deduction to an IRS agent when he comes knocking.  

[qbteachmt]

Here's the reality: They are lucky the daughter didn't put them into the high risk category of a lawsuit expecting this "business vehicle" to be backed by deep pockets. In other words, depending on if she caused property damage and/or bodily harm, even to herself, he could be sued for everything if he wants to continue to take the position this was business-related, including losing his business and any personal assets to a legal judgement. And it's his daughter that could be the plaintiff, even. Especially, it gets even worse if they keep claiming this was business-related and she was "doing the business" on that trip, because now you have worker comp considerations, as well.

I recommend they suck up personal loss and move on. The IRS really doesn't care about this sort of mess.

[qbteachmt]

I've been thinking further on this part: "He did not have it insured yet"

Are they sure? I've dealt with lots of vehicle insurance providers, coverage, and claim issues (OMG, I've worked with/for some bozos...). Every policy included automatic coverage for a new-to-you vehicle for some provisional amount of time, allowing you time to contact them to get the coverage after purchase. Also, the driver's own insurance should have some sort of coverage for driving another person's vehicle.

[PATAX]

@qbteachmt both of your posts were excellent and you raised great points. You hit home runs on both of those. Did you eat Wheaties this morning for breakfast?

[IRonMaN]

 "Every policy included automatic coverage for a new-to-you vehicle for some provisional amount of time"

And that provisional amount of time most likely ended 12 seconds before the crash.  Insurance companies always look for any possible reason to avoid paying.  In the event that the provision period issue had some wiggle room, a 16 year old daughter driving a business vehicle should dash anymore hopes and dreams of the insurance company writing a check.

[PATAX]

@IRonMaN you hit the nail on the head with that one Iron Man. They love to sell insurance and to collect the money, but when it's time to pay out then it's a different story. What a joke.

[qbteachmt]

"you raised great points"

Well, heck; there still is the opportunity to file Grand Theft Auto against the daughter! Might as well explore all possibilities.

[PATAX]

@qbteachmt Had a client years ago that had a crackhead relative that absconded funds from her checking account. The Bank agreed to reimburse her, but she had to file charges against the crackhead. oh by the way, what did you have for breakfast? 

[qbteachmt]

"what did you have for breakfast?"

Half of a huckleberry bagel. Yum.

[BobKamman]

You're assuming that the parents had collision insurance on any of their vehicles.  Usually it's the lender that requires insurance -- the dealer doesn't care, once they collect the full purchase price.  There may be a state law requiring liability insurance, but that's not what this question is about.  

There's no law requiring insurance on your home, if you don't have a mortgage.  Many people in Florida are already making that choice.  Likewise, just because most people insure their vehicle against loss, at least if it's worth more than a couple grand, doesn't mean that everyone does it.  Especially if you have a teen-age driver in the house.  The mistake is letting that kid get a license in the first place (we don't know she did), and then giving her the keys (which seems to me to fit the definition of "this is not a business vehicle").  

[PATAX]

@qbteachmt I should have had a good high energy breakfast this morning. Been busy all day now three more returns just came in. Jimmy Dean breakfast sandwich with olive oil and a tomato just doesn't do it.

[TaxGuyBill]

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@belva333j wrote:

What portion is deductible on his sole proprietorship return? Can I claim the whole thing as a loss?

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The business portion would end up as a loss (essentially, the vehicle was 'sold' for $0).  But unless the daughter was driving for the business, it would not be 100% business.

[sjrcpa]

@BobKamman Maryland requires proof of insurance to register a vehicle.

Maybe this dimwit didn't even have it registered yet.

[BobKamman]

@sjrcpa Most states require proof of liability insurance.  There is no indication here that the owners did not have liability insurance.  The issue is collision insurance.  I don't know of any state that requires vehicle owners to insure against their own loss.  

[sjrcpa]

True.