Many taxpayers are unaware that certain expenses for their personal vehicle are deductible and often miss out on this very valuable tax deduction. Business trips, driving expenses while volunteering with your favorite charitable organization, trips to your doctor and even driving expenses incurred while moving to your new home may count as a deduction. As long as certain requirements are met, you could be entitled to a deduction on your income tax return.
Deducting vehicle expenses for the business
Vehicle expenses incurred for a business purpose could be expensed if you are driving from one work location to another or driving from your home office to meet with clients or attend to daily business activity. Commuting from home to work is not considered a business expense and is not deductible. However, contractors and self- employed individuals are exceptions to this rule and can claim their mileage to and from work as a business expense.
The IRS provided two methods of deducting vehicle expenses for a business purpose, the standard mileage rate method and actual vehicle expense method. In the first year that a new vehicle is available for business use, the right method should be determined to get the maximum benefit from this deduction. To be able to use the standard mileage rate method each year, it should be used in the first year that a vehicle is used for the business. If in the following year it is determined that the actual expense method is more beneficial, the option of using this method is still available. It is important to know that if the actual expense method is chosen in the first year that a vehicle is placed in service, the standard mileage rate method can no longer be used. If a leased vehicle is used for a business purpose and the standard mileage rate method is used, the same method must be used the entire lease period.
Keeping track of expenses
If a vehicle is available for both personal and business use, the expenses must be divided based on the percentage of use. The percentage of use can be determined by calculating the miles driven for each purpose. It is also important to note that the vehicle expenses claimed for business purpose should be reasonable and appropriate. As an example, vehicle expenses for an e-commerce business should be considerably less than those for a truck driver based on the nature of the activities. Record keeping and maintaining proof of the expenses is needed in order to substantiate the expenses claimed on your tax return.
In order to be able to claim a deduction, the IRS requires that a mileage log be maintained in order to support the business nature of the expenses. The mileage log should include the date, beginning and ending odometer reading and a brief description of the trip.
Choosing the standard mileage rate
The standard business mileage rates for 2009 and 2010 are 55 cents and 50 cents per mile, respectively. Expenses such as gas, repairs, maintenance, insurance and depreciation cannot be deducted if the standard mileage rate method is used. The standard mileage rate method may not be used if it is for a vehicle for hire such as taxi or limousine services, if four or more vehicles are used by the business simultaneously or if the expenses were incurred by an employee while using a vehicle provided by his employer.
Choosing the actual vehicle expense method
The actual vehicle expense method is used if it provides a greater benefit than the standard mileage rate method. Once the actual expense method is chosen, it must be used throughout the life of the automobile. Actual automobile expenses include depreciation, gas, oil, insurance, repairs and lease payments on the vehicle. Automobile loan interest expense is deductible for self-employed individuals but not employees. Money paid for parking and tolls are deductible for both methods. Fines are not deductible.
Medical automobile expenses
Automobile expenses such as travel to doctors, dentists, hospitals or other qualifying healthcare facilities are considered medical expenses. The standard mileage rate for medical expenses is 24 cents per mile for 2009 and 16.5 cents per mile for 2010. Oil or gas expenses can be taken instead of mileage if the expense results in a higher deduction. Medical automobile expenses are reported on Schedule A, Form 1040.
Moving automobile expenses
Moving expenses are deductible if they are due to a change in the location of your current job or business or if you are starting a new job or business. In order to claim moving expenses, certain tests must be satisfied such as the distance and time test. If all the tests are satisfied, you can claim your moving expenses on form 3903. The standard mileage rate for moving expenses is 24 cents per mile for 2009 and 16.5 cents per mile for 2010. Gas and oil expenses can be claimed instead of mileage if the deduction results in a greater tax benefit.
Charitable automobile expenses
The IRS also allows a deduction for automobile expenses incurred for a qualified charitable organization. You can deduct your actual gas and oil expenses or you can also use the standard mileage rate of 14 cents per mile for 2009 and 2010. The expense is reported on Schedule A, Form 1040.
Schedule an appointment with one of the Tax Club’s specialists to see if you qualify for the automobile expense deduction on your income tax return.
