If you use a vehicle for conducting business, you can deduct certain
automobile tax expenses from your tax bill. This is true even if you
use the vehicle for personal and business needs.
Automobile Tax Expenses
The powers that be have historically written sections into the tax code
promoting business activities. One of the traditional write-offs has
always been the expenses associated with using a vehicle for business
purposes.
The simplest automobile tax expense situation is one in which a vehicle
is used entirely for business. For example, if you have a van used for
a delivery service and nothing personal, all expenses associated with
the van can be written off. This is known as the exclusive use
situation. For many small businesses, however, a vehicle will be used
for both personal and business reasons.
Where you use a vehicle for both personal and business reasons, you can
only deduct the automobile expenses associated with the business use.
Keep in mind that driving to and from work is not considered business
mileage, while driving from an office to meet a client is considered
business mileage.
There are two methods for determining deductible automobile tax
expenses. The first is a simple calculation known as the standard
mileage deduction. The second is the actual expenses method. You can
choose whichever deduction provides you with the biggest deduction
unless you lease the car. With a lease, you must use the standard
mileage deduction.
The standard mileage rate deduction is a calculation wherein you
multiply your total business mileage for the year by a figure provided
by the IRS. For the first eight months of 2005, the figure provided by
the IRS is 40.5 cents per mile. For the last four months of 2005, the
figure has been bumped up to 48.5 cents to reflect high gas prices.
The actual cost expense option is exactly what it sounds like. It is
the actual cost associated with using the vehicle for tax purposes for
a particular tax year. Automobile tax expenses will include gas, tires,
repairs, oil changes, registration costs, licensing, insurance and so
on. In many cases, the actual expense deduction will end up being
larger than the standard mileage deduction.
Regardless of the method you choose, you must document the automobile
tax expenses. This means keeping a mileage book and receipts of
anything you intend to deduct.
