Tax "Brakes" for Using Your Car for Business
Whether you are self-employed or an employee, you are eligible to get the benefit of tax deductions if you use your personal vehicle for business.
There are two options for claiming deductions:
- Deduct the actual business-related costs of gas, oil, repairs, tires, parts, parking, tolls, and depreciation; or
- Use the standard mileage rate (55.5 cents in 2012) and multiply the rate by the total number of business miles travelled during the year. Under this method, the actual parking expenses and tolls are separately deducted.
For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deductign actual expenses. Typically, the standard method benefits taxpayers who drive less expensive vehicles or who travel a large amount of business miles (but not using the car primarily for business).
To help make tax time easier, keep careful records of your travel expenses and record your mileage in a log book. The IRS requires that you keep travel expense records and that you provide information on your tax return showing business versus personal use. If you use the actual cost method for deducting auto expenses, you must keep receipts.
Self-employed individuals and employees who use their cars for business can deduct auto expenses if they do not get reimbursed or if they 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.
If you have questions about deducting the business use of your auto, or would like to discuss other tax savings ideas for your business or personal tax return, please contact me at email@example.com 847.779.6206.