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Get the Biggest
Tax Deduction You Can for Your Business Car Use
© 2000,
by Jan Zobel, EA
If, like most entrepreneurs,
you use a car or truck in your business, you're probably anxious
to take as much as you can in tax deductions for this expense.
As with other business expenses, good recordkeeping is the key
to maximizing your tax savings.
- In order to
deduct the expenses of operating your vehicle, you need to know
how many total miles you've driven during the year, and how many
of those miles were for business. If you have a deductible office-in-home,
your car may be used 100% for business if a second car is available
for personal mileage. Without the home office, however, your
car expenses generally won't be 100% deductible because your
business mileage isn't considered to start until you get to your
first stop of the day. From home to the first business stop of
the day and from the last stop of the day to home is considered
commuting, just as if you were working for someone else.
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- If you don't
have a deductible office-in-home, you may want to consider ways
of reducing your commuting or nondeductible mileage. Would it
be appropriate for you to have a post office box for your business?
If so, open one near your home. Can you buy from a supplier near
your home? If so, do it. From home to the post office or supplier
will still be commuting, but from that point on, you have deductible
business miles.
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- If you travel
to a business location outside your tax home (the approximately
40-mile perimeter around your main place of business), you can
include the miles to and from your home as business miles even
if you don't have a deductible home office. This exception to
the general business mile rules will be helpful to those who
travel great distances for their business, but don't have a deductible
home office.
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- Keeping Records
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- The key to deducting
business mileage is having good records. Keeping track of the
total miles you drive your car each year is easy; just write
down the odometer reading each January 1. If you don't have that
figure for this year, repair bills (which usually include the
odometer reading) may help.
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- Keeping track
of the business miles is harder. Ideally, you'll keep a log (available
at any office supply store) or notebook in your car. Write down
either the beginning and ending odometer reading for each business
trip, or note how many business miles you drive each day. In
either case, also note what business locations you visited.
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- Although it's
easy once you get into the habit, many people don't want to be
bothered keeping a car log. If you're one of those people, see
if one of the following methods works better for you:
- Write down in
your appointment book how many business miles you drive each
day; the calendar notations will indicate what business locations
you visited.
- If you go on
the same route or to the same location regularly, measure the
distance once and count the number of times you make the trip
during the year.
- If you use your
vehicle primarily for business, instead of keeping track of the
business miles, keep track of the number of personal miles you
drive.
- If your business
driving is similar throughout the year, keep detailed records
for 1 month each quarter or for 1 week of each month. This will
give you enough information that you can fairly accurately calculate
your annual business mileage.
- Calculating
the Deduction
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- Whichever way
you keep your records, once you know the total number of miles
the car was driven for the year and how many of those were for
business, there are two possible ways of deducting your car expenses
(see the example).
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- The first is
called the actual expense method. To use this method, add together
your expenses for gas, oil, repairs, insurance, auto club membership,
car license, and loan interest or lease payments. Then multiply
the total expenses by the percentage you use the car for business.
Add the car's depreciation to this figure (unless you lease the
car), along with your business parking and tolls. The end result
is your total business car expense.
The second method of deducting your car expenses is called the
mileage rate or standard method. To use this method, multiply
the number of business miles you drove during the year by the
IRS proscribed amount. For 1999, that was 32.5¢ a mile for
January through March and 31.5¢ a mile for the remainder
of the year. For 2000, the allowed amount is 32.5¢ a mile.
The only expenses you can add to this figure is the business
percentage of your car loan interest and car registration, and
your business parking and tolls (parking tickets are never deductible).
All other expense are considered to be covered by the per-mile
deduction.
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- You can change
methods from year to year as long as you use the standard or
mileage rate method the first year you buy the car or begin using
it in your business. If you use the actual expense method the
first year, you'll have to continue using that method as long
as you own this car.
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- The recordkeeping
for car use may seem tedious but, since this is often a sizable
expense for your business, the resulting tax deduction will make
your efforts worthwhile.
- The above is an excerpt from
Jan's
recently revised book,
Minding
Her Own Business: The Self-Employed Woman's Guide to Taxes and
Recordkeeping (Adam
Media Corporation) which is available for only $8.76 at
Amazon.com.
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