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Business Car? Check out these 2 deductions!

by David Huff on September 4, 2012

If your car is used for business purposes, whether you are self-employed or an employee, you can get the benefit of tax deductions.

Business Cars and Tax Deductions

Business Cars and Tax Deductions

 

You have 2 choices for claiming deductions on a business car:

  •   You can deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers’ salaries, and depreciation.
  •  Ã‚ Use the standard mileage deduction in 2012 and simply multiply 55.5 cents by the number of business miles traveled during the year.  All parking fees and tolls are deducted separately under this method.

It is up to you, the taxpayer, to decide which method is better.  For some taxpayers, it is better to use the standard mileage rate because it produces a larger deduction.  Other taxpayers come out better deducting the actual expenses. Make sure you review the following guidelines for using either method.

In order to use the standard mileage rate, you must own or lease the car and: 1.  you must not operate 5 or more cars, as in a fleet operation, 2.  you cannot be a rural mail carrier who received a qualified reimbursement, 3.  you must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System on the car in an earlier year, including first year depreciation or bonus depreciation or any method other than straight-line for its estimated useful life, or 4.  you must not have claimed a Section 179 deduction on the car and you must not have claimed actual expenses after 1997 for a car you leased.

*If you lease the car, you must use the standard mileage rate method for the entire lease period( including renewals).

To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that is business use. Be sure to include gas, oil, repairs, tires, insurance, registration fees, licenses and depreciation attributable to the portion of the total miles driven that are business miles.

The law requires that you substantiate your expenses with adequate records or with sufficient evidence to support your claim.  Keep all receipts!

If you are an employee and your expenses are fully reimbursed under an accountable plan, these reimbursements should not be included in your wages on your W-2 and you should not deduct the expenses.

For any questions regarding business-car deuctions, please call Person Huff CPA Group.

 



David W Huff, CPA, PFS, MS is a partner at Person Huff CPA Group. He provides clients with tax preparation and consulting services, accounting services, retirement plan and benefit consulting, accounting software technical support and training, and management advisory services. His specialty is helping new businesses organize their operations to maximize tax savings and move quickly from start-up to profitability.  You can reach David by email at: david@personhuffcpa.com