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Abandoned Vehicle and IRS write off's


MrsTow
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  I'm trying to understand how I wouldn't be able to write off the following on my company taxes. We tow for the police departments. We get called out by the police and most of the time the vehicle goes to the tow yard. If the person involved in the accident doesn't have towing or only liability insurance they end up abandoning the vehicle at our yard. If this happens, I have to file an ABV and pay fees, then the process takes 45 to 60-days for us to receive the title, so I can dispose of the vehicle.  So I'm already at a loss from the start. Below is an example of the loss.
 
01/01/2021 Police department calls for an accident tow and the customer abandons the vehicle at the yard.
$235 for tow
$4.50 @ 7 miles for mileage = $31.50
45 days at $30 = $1350.00
By the end of the 45 days, the owner owes me $1616.50 but never pays.
 
Now during this, I have paid 35 % of the original tow to the driver $93.28 (235+31.50)
Filing fee's $12.00 (ABV)
Inspection fee $30.00 (Vin check)
Employee 2 hours of time @ 420 ph $40.00 more if vin inspection is needed
 
Total 175.28 I've paid and never received the $1616.50 from the owner. 
Above Totals $1791.78 of my loss
 
If I sell to a junk yard upon receiving the title, I usually get $200.00.
 
I'm being told by an accountant, I can't write it off because I'm a cash based company! Please don't pay attention to the numbers it's just an example. I'm also told to go to small claims and pay more fees to get a judgement that they wont pay anyways.  How do you guys/gals handle this? Thanks!
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I am not an accountant, but here is the reality as I see it. The actual costs you are writing off! The payroll  is deductible, the fuel is deductible, the uniforms are deductible, the costs of the fencing for your impound is deductible, the property taxes or rental expenses are deductible, the filing fee, inspection fee, etc is deductible ... so your actual expenses related to providing the service and running your business are in fact deductible. I hope and assume these are actual expenses that you are keeping track of and are the real costs of running your business. The profitable portion of the equation is where you are losing, you have expenses that are not providing actual income to offset them. While it looks on paper like you have lost money on the transaction, and you have in fact lost some amount of money by not being able to collect, you have not in fact lost $30/day for storage since it does not cost you $30/day to store the vehicle, nor does it actually cost you $4.50 per mile to operate the truck or $235 for the actual tow. There is going to be a certain amount of this type of "loss" in this type of business, and we as business owners have to do our due diligence to keep these types of situations to a minimum, and be proactive at controlling our expenses related to this potential. These expenses need to be figured into your overall expenses for your business. While I agree that it is frustrating, infuriating, etc, we have to structure our pricing to be able to compensate for situations like you have listed.

 

I too am frustrated that there is seemingly no way to recoup these expenses. The whole "blood from a turnip" thing. Do I want revenge - YES! Do I think local law enforcement could and should do more to assist with cases like these - YES! Should there be better ways to recoup the lost profit - YES! Should I be able to go after the registered owner easier - YES! Shoud the owner that abandoned the vehicle on me (and you) be arrested and charged with a crime - YES! Should every owner have insurance, and I be able to collect from insurance - YES! Would it be nice to be able to deduct lost potential profit? ABSOLUTELY! If I could do that, many years I could show a HUGE loss on my taxes ... Would it be nice to not have to figure these losses into my rates, thereby making all of my other clients pay for these f***ing deadbeat looser drags on society? ABSOLUTELY!

 

I have a Jeep Grand Cherokee in my storage right now from an accident, and for a lot of reasons it is still sitting in a corner, with a storage bill around $56k! Would I like to collect - SURE! Do I expect to collect? Certainly not! Should I really be able to deduct $56k from my taxes? No, that does not make any sense, but I do continue to deduct ALL of the actual expenses related to storing this and other vehicles in my storage as legitimate expenses related to the operation of my business.

 

I agree wholeheartedly with your premise, but the reality is a bit different. I am absolutely sure that nearly everyone here has had the same thoughts and experiences with these situations. THEY SUCK! We all get frustrated and angry, but you have a business to run. Minimize your expenses the best you can, be proactive on every job to try to avoid these situations, and accept that some F***ERS are going to get you from time to time.  And try not to loose sleep over them, I like to think karma comes around to everyone eventually.

 

Your actual cash loss (after getting $200 for the salvage) is probably more like $200-300, which you are in fact able to write off, and already are.

Edited by doingitall
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That is an EXCELLENT response Doingitall. Couldnt have explained it better myself.

Looking at the overall picture of an abandoned wreck, it does certainly seem like your losing out on all you mentioned Mrstow. But with proper documentation and some quality accounting / book work like Doingitall mentioned, The loss is in your profits. Does it make it right? Of course not. Lets be realistic, We are all in business to MAKE PROFIT. The key here is to minimize that loss and devise a streamlined way of getting that abandoned turd off your log book and out of your yard as quickly and as legally possible. 

And to speak on the accounting / book keeping, You mentioned your accountant called your business a "cash based" company??... What exactly does he or she mean by that? If you are in fact running a properly licensed, registered and Insured business, then in todays modern business age, that statement is false. The "cash based" business statement in my eyes is a fly-by night, under-insured "scab company" that is more than likely operating Illegally and under the radar..  And Please, by NO means am I insinuating That you or your business are !!! Don't take it that way, I mean NO offense. It is in the wording. What I am trying to get at is it seems that your accountant may not be classifying your business properly and if that is the case, is probably not handling your books properly.  you may want to at least shop around or at least speak to another well established accountant to ensure your business is being handled properly books and accounting wise.

Every state / county and jurisdiction has different laws as far as dealing with abandoned vehicles. Some can be really complex and others rather simple so it is difficult to say that what I or any other Tow owners out here do to minimize  loss will work or even be legal for you to do. One word of advice I can give you is to do your thorough and best research on your local laws regarding this AND have your business Attorney ( or hire one to assist with this specifically if you dont have a regular one ) Go through the legal mumbo jumbo on the subject as well. There may be some "loopholes" that can work in your favor. Then develop a good, letter of the law system for streamlining and dealing with the dead beat owners and stick to it.

Here in NY, there is a minimum of liability only insurance required to register a vehicle. It is the absolute bare bones of coverage that many will get just to put their vehicle on the road. In my opinion, it is antiquated and is nowhere near what any minimum coverage should be in this day and age. An example would be a young kid goes and buys some tired, worn out and rotted pickup from his uncle for $500, buys the minimum insurance so he can register his "new toy" then ends up rear-ending a Tesla at a red light.. Is his measly $25,000 per occurrence policy going to replace that totaled Tesla?? of course not. So, the Tesla's Insurance now has to cover the difference, The kid ( and his parents if he still lives at home ) then gets his ass sued off by both the Tesla owner, their Insurance company and anyone else who has financial loss due to this accident. INCLUDING The tow company who towed, stored and cleaned up what was left of his beloved truck. Now, His Financial life is off to a fantastic start all because he wanted to save on his monthly insurance premium or was in that teenaged rush to get his first truck on the road.. I am a firm believer that this states minimum insurance requirements need to be upgraded and improved. This alone can and would minimize many trouble areas Including My Towing business getting stuck with more tow-storage bills than I can shake a stick at.

And I get that many people cant afford better tiered or Comprehensive insurance. To that I say, then you cant afford to own or operate a vehicle.. If it comes to a day that I cant afford to run my business or pay for my home, then I wont have it.. It is  the same in principal.. The general public MUST be better educated as to how and why proper insurance coverage is CRITICAL. It is just one of those thigs that no one ever thinks about until it is too late. Sorry for the long Rant, Just my opinion on one way that the abandoned, under-insured vehicles can be dealt with.

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PROFESSIONAL TOWING & RECOVERY IS NOT JUST A JOB.. IT IS A LIFESTYLE

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Grumps, for clarification ...

I would bet that nearly every towing company in the US operates as a cash based business for accounting purposes, definition below:

 

How does cash basis accounting differ from accrual basis accounting?
 
Cash Basis Accounting: An Overview. The main difference between accrual and cash basis accounting lies in the timing of when revenue and expenses are recognized. The cash method is a more immediate recognition of revenue and expenses, while the accrual method focuses on anticipated revenue and expenses.
 
That is what her accountant is referring to.
So there seems to be some confusion in this thread about that terminology. With accrual based accounting, there can be some write off, but there will end up being a corresponding reduction when there is no income to offset. Really ends up being about the same anyway. But the assertion from MrsTow "I'm being told by an accountant, I can't write it off because I'm a cash based company!"  is either something taken out of context, or not really understood correctly and will need some clarification from her accountant. Operating as a cash based company is how nearly all businesses operate in the United States, and the term relates only to accounting practices. No relation at all to how anything else in the business is handled.
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On 9/17/2021 at 6:51 PM, doingitall said:

I am not an accountant, but here is the reality as I see it. The actual costs you are writing off! The payroll  is deductible, the fuel is deductible, the uniforms are deductible, the costs of the fencing for your impound is deductible, the property taxes or rental expenses are deductible, the filing fee, inspection fee, etc is deductible ... so your actual expenses related to providing the service and running your business are in fact deductible. I hope and assume these are actual expenses that you are keeping track of and are the real costs of running your business. The profitable portion of the equation is where you are losing, you have expenses that are not providing actual income to offset them. While it looks on paper like you have lost money on the transaction, and you have in fact lost some amount of money by not being able to collect, you have not in fact lost $30/day for storage since it does not cost you $30/day to store the vehicle, nor does it actually cost you $4.50 per mile to operate the truck or $235 for the actual tow. There is going to be a certain amount of this type of "loss" in this type of business, and we as business owners have to do our due diligence to keep these types of situations to a minimum, and be proactive at controlling our expenses related to this potential. These expenses need to be figured into your overall expenses for your business. While I agree that it is frustrating, infuriating, etc, we have to structure our pricing to be able to compensate for situations like you have listed.

 

I too am frustrated that there is seemingly no way to recoup these expenses. The whole "blood from a turnip" thing. Do I want revenge - YES! Do I think local law enforcement could and should do more to assist with cases like these - YES! Should there be better ways to recoup the lost profit - YES! Should I be able to go after the registered owner easier - YES! Shoud the owner that abandoned the vehicle on me (and you) be arrested and charged with a crime - YES! Should every owner have insurance, and I be able to collect from insurance - YES! Would it be nice to be able to deduct lost potential profit? ABSOLUTELY! If I could do that, many years I could show a HUGE loss on my taxes ... Would it be nice to not have to figure these losses into my rates, thereby making all of my other clients pay for these f***ing deadbeat looser drags on society? ABSOLUTELY!

 

I have a Jeep Grand Cherokee in my storage right now from an accident, and for a lot of reasons it is still sitting in a corner, with a storage bill around $56k! Would I like to collect - SURE! Do I expect to collect? Certainly not! Should I really be able to deduct $56k from my taxes? No, that does not make any sense, but I do continue to deduct ALL of the actual expenses related to storing this and other vehicles in my storage as legitimate expenses related to the operation of my business.

 

I agree wholeheartedly with your premise, but the reality is a bit different. I am absolutely sure that nearly everyone here has had the same thoughts and experiences with these situations. THEY SUCK! We all get frustrated and angry, but you have a business to run. Minimize your expenses the best you can, be proactive on every job to try to avoid these situations, and accept that some F***ERS are going to get you from time to time.  And try not to loose sleep over them, I like to think karma comes around to everyone eventually.

 

Your actual cash loss (after getting $200 for the salvage) is probably more like $200-300, which you are in fact able to write off, and already are.

Thank you for taking the time out of your day to give me your thoughts on this. Appreciate you! 🙂

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Doingitall, I understand the differences in accrual and cash basis accounting. I am also aware that most U.S. small and medium businesses run on cash basis accounting because it is the method that most closely follows a businesses financial activity "in real time" rather than through projections, past models and anticipations.

I suppose what I was trying to get across but ended up rambling off was Why would an accountant use that as an excuse to explain away Mrstow's question of writing off the loss Instead of breaking it down like you did for her or My accountant did for me way back when I raised that same question? My concern is with Mrstows accountant's response.

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PROFESSIONAL TOWING & RECOVERY IS NOT JUST A JOB.. IT IS A LIFESTYLE

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On 9/17/2021 at 7:34 PM, MrsTow said:
01/01/2021 Police department calls for an accident tow and the customer abandons the vehicle at the yard.
$235 for tow
$4.50 @ 7 miles for mileage = $31.50
45 days at $30 = $1350.00
By the end of the 45 days, the owner owes me $1616.50 but never pays.
 
Now during this, I have paid 35 % of the original tow to the driver $93.28 (235+31.50)
Filing fee's $12.00 (ABV)
Inspection fee $30.00 (Vin check)
Employee 2 hours of time @ 420 ph $40.00 more if vin inspection is needed
 
Total 175.28 I've paid and never received the $1616.50 from the owner. 
Above Totals $1791.78 of my loss
 
If I sell to a junk yard upon receiving the title, I usually get $200.00.
 
I'm being told by an accountant, I can't write it off because I'm a cash based company

My thoughts for what it's worth, hopefully simplified.  

I agree, cash versus accrual base accounting is what your account must be talking about, BUT, even if you were doing your accounting on an accrual basis you still cannot write off ALL that you have listed.  

In your list, you are trying to write off the Lost Profit, you cant write off lost profit so you need to itemize all the expenses for that particular call.

 

To do that you need to know what your operating costs are and be able to substantiate it if audited.  For example, I know that it costs me $1.62 per mile to operate my trucks, and that includes driver pay based on averaging 28mph .  I can also take driver pay out of my calculation and it brings my cost to operate a truck down to $1.12 per mile or $31.00 per hour.  This is important because, as someone else stated, your are writing off your drivers pay in your payroll. 

 

What you can deduct on your example is the TIME it took the truck to go to the call and hook up, clean up, etc.  You have that listed in your example as $235.00 but you need to know how much time was involved.  Lets say, for example that all took 1.5 HOURS.  You would then deduct 1.5 X your hourly operating costs.  Using my costing example that would be 1.5 X $31.00.  That is what you lost having that truck out there for 1.5 hours and not getting paid.

 

You can deduct the 7 miles at the rate it costs you to run the truck, using my expense example it would be 7 X $1.12.  That is what it costs you to run that truck for those miles that you did not get paid for.

 

To simplify that process, you can just use the total time the truck was tied up on that call and use the hourly calculation.

 

Storage charges, In my costing to run my trucks, there are line items there that account for Office overhead, maintenance on the trucks, building overhead, and other things I need to have to run the business. That is basically what someone else stated and if you do your costing and include all of those items, you are covered.  In your example you are trying to write off lost income or lost revenue for the storage charges.  That is not an expense.

 

All of the fees and leg work you need to do to get "ownership of the vehicle are expenses and can be written off.

 

Then, when you sell the vehicle you list that as Income in your accounting,

 

Hope that helps and yes, it is a Pain in the Azz but it is part of doing business.

Also, if your accountant did not explain to you how and what you CAN deduct in your scenario, I think I would be looking for another accountant.

 

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