Question on Expenses for Used Car Dealer

[Terry D EA]

Client is a used car dealer. When purchasing, receiving, or returning cars from an auction. Are the mileage or actual expenses deductible or are they added to the cost of the vehicle for sale. If so, would the mileage be added to the cost of the vehicle at the Federal rate? My thinking is actual expenses only. Car dealerships are new to me and any help is appreciated. Just to add, I don't know the entity structure at this time.

Thanks,

Terry D.

[RoyDaleOne]

Actual expenses, the nature of which is in the form of freight.

However, the accounting methods for the treatment of certain expenses can vary depending upon the sales volume, and elections.

Sales > 10M

Sales > 1M and < 10M

Sales <1M

263A rules, or not

Inventory elections

Good luck.

[mcb39]

Client is a used car dealer. When purchasing, receiving, or returning cars from an auction. Are the mileage or actual expenses deductible or are they added to the cost of the vehicle for sale. If so, would the mileage be added to the cost of the vehicle at the Federal rate? My thinking is actual expenses only. Car dealerships are new to me and any help is appreciated. Just to add, I don't know the entity structure at this time.

Thanks,

Terry D.

My husband has been a used car dealer for 35 years. We have always used actual expenses. I account for Gas, Diesel, etc. under the category of Travel and Transportation; sometimes cars are transported by rental carrier at a per car rate.

The things that I add to the cost of the vehicles are major parts, repairs, cleanup and such for specific cars; which expenses then become part of inventory. General parts purchases as well as bulk oil, batteries, etc usually go to Shop Expenses. I keep the Sales Tax and License Fees separate as well in their own categories. Any more car dealer questions, feel free to ask. We have never been questioned or audited, knock on wood. :read:

[TAXBILLY]

This might be of help:

http://www.irs.gov/pub/irs-utl/new_vehicle_atg_jan_2005.pdf

taxbilly