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Gas prices always seem to be rising, and you never feel like you made out cheaply at the mechanics. But, if you use your car or truck in your business, at least you can deduct some of the costs of operating and maintaining it. The auto expense deduction can be a great deduction for business owners, but it often creates a little confusion when you sit down to do your taxes. The IRS allows two methods: standard mileage rate or the actual expense method.
Standard Mileage Method
The standard mileage rate is a specified amount of money that is deductible for each mile that you drive for business purposes. The rate is announced annually by the IRS and is $.55 for 2012. To determine your auto expense deduction, you simply multiply the number of business miles by the standard mileage rate. Miles driven while commuting to and from work are not considered business miles. If you use the standard mileage rate, you cannot deduct your actual expenses. However, you may still deduct the interest on your car loan, parking, and tolls.
Actual Expense Method
If you choose to deduct actual expenses, the following expenses may be deducted:
- Depreciation of the vehicle
- Gas
- Insurance
- Licenses
- Oil
- Registration
- Repairs
- Tires
- Lease payments
- Interest on loan payments
- Parking
- Tolls
Keep in mind, that the actual car loan payments are not deductible, just the interest. You receive the deduction for the value of the car through depreciation. However, depreciation is limited to $1,775 a year for vehicles that do not weigh over 6,000 pounds. For example, if you buy a $20,000 car, it will take you 11 years to fully depreciate your car.
If your vehicle is also used personally, you must divide your expenses between business and personal use. You simply divide your total expenses by the percentage of personal miles driven.
Recordkeeping
Using the actual auto expense method requires keeping every gas, oil change, car wash, auto repair receipt for the vehicle. The standard mileage simplifies things by eliminating some of the recordkeeping. However, regardless of the method you choose, you will have to track your mileage driven in some form of mileage log.
Please contact us today for a free consultation to see how we can help you with your tax and accounting needs!
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