Tuesday, April 1, 2008
By: Chuck Chuckuemeka
Deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers’ salaries, and depreciation. Use the standard mileage deduction and simply multiply 50.5 cents (the rate for 2008, 2007’s rate equals 48.5 cents) by the number of business miles traveled during the year. Your actual parking fees and tolls are separately deductible under this method. Which method is better?
For some taxpayers, the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses.
Tip: The actual method allows you to claim accelerated depreciation on your car, subject to limits and restrictions not discussed here.
The standard mileage amount includes an allowance for depreciation. Opting for the standard mileage method allows you to by-pass the limits and restrictions and is simpler, but often less advantageous in dollar terms.
Caution: The standard rate may understate your costs, especially if you use the car 100% for business, or close to that percentage.
Caution: Once you choose the standard mileage rate, you cannot later use accelerated depreciation if you opt for the actual cost method in a later year. You may then use only straight line.
Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.
How To Make the Most of Your Auto Deductions
Keep careful records of your travel expenses. We won’t be able to determine which of the two options is better for you if you don’t know the number of miles driven and the total amount you spent on the car.
Furthermore, the tax law requires that you keep travel expense records and that you give information on your return showing business versus personal use. If you use the actual cost method, you must keep receipts.
Tip: Consider using a separate credit card for business, to simplify your record-keeping.
Tip: You can also deduct the interest you pay to finance a business-use car, if you’re self-employed.
Note: Self-employees and employees who use their cars for business can deduct auto expenses if they either (1) don’t get reimbursed, or (2) are reimbursed under an employer’s "non-accountable" reimbursement plan. In the case of employees, expenses are deductible to the extent that auto expenses (together with other "miscellaneous itemized deductions") exceed 2% of adjusted gross income.