There are two different ways of deducting automobile expenses: actual expenses or mileage deduction. Many business owners choose to use a standard mileage deduction each year because it is easier to keep mileage logs than to keep track of every expense. But, according to NOLO legal information website, you will normally receive a higher deduction if you itemize all your actual expenses.
Deductions for Mileage
Each year, the IRS sets an amount that can be deducted per mile. For the year 2010, the mileage deduction was $0.50 per mile for business use. In 2011, the mileage rate will increase to $0.51. There are different rates based on the reason you are using your vehicle. For example, you can deduct $0.165 per mile when using your car for medical appointments or for moving and $0.14 if driving for charitable organizations.
In order to take advantage of the mileage deduction, you should keep a log of the miles driven while conducting business. Your log should contain the date, the beginning odometer reading, the ending odometer reading, total miles driven and the purpose of the trip. At the end of the year, you can add up the total miles driven for business and multiply this amount by the mileage deduction. This will be your deduction on your tax form. Remember to keep your log with your tax paperwork. If you are audited, you will need to show your log to the auditors.
You are not able to use the mileage deduction if you have previously used a deduction for depreciation of the vehicle. It is also not allowed on vehicles for hire or if you use more than four cars simultaneously.
Actual Expenses
If you choose to keep track of your actual expenses, you will need receipts for:
- Gas and oil
- Repairs and maintenance (including car washing)
- Insurance
- Tolls
- State licensing fees
- Lease payments or interest on your auto loan
In addition to the actual expenses you incur, you will be able to take a deduction for depreciation of your vehicle. This method also requires you to keep a log of business use of your car. You can deduct the above expenses based on the percentage you used your car for business. The amount of time you used the vehicle for personal use is not deductible.
Tips to Remember
- You can deduct parking fees under both mileage and actual expense deductions. Parking tickets, however, are not deductible.
- If your office is in your home, you can deduct your entire trip, from the time you leave your driveway until the time you return. If your office is not in your home, start recording your mileage when you reach your first business destination and end when you leave your last destination of the day. You cannot include mileage to and from your home.
When working on your business taxes, be sure to include automobile expenses to lower your taxes. Whether you choose to take the standard mileage deduction or use your actual expenses, it is important to keep accurate records to verify your deduction should you be audited.
References:
“15 Small-Business Tax Deductions”, 2010, March 4, Karin Price Mueller, Entrepreneur Magazine
“Deductions Your Small Business Shouldn't Miss”, 2003, Feb 13, Inc. Magazine
“If I use my car for business, how much of that expense can I write off?”, 2010, Staff Writer, NOLO
“IRS Announces 2010 Standard Mileage Rates”, 2009, Dec 3, Internal Revenue Service
Eileen Bailey - Eileen Bailey is a freelance writer. She began her writing career almost 20 years ago writing marketing material and sales presentations. ...
Join the Conversation