Wednesday's tax tip - Volume 10

If you use your automobile for business purposes, you can deduct the business use of the automobile against your income.

You can use one of two methods of determining your deduction; Actual v. the mileage reimbursement rate.

If you use actual expenses, you need to maintain records of all your expenses related to auto usage; this includes gas, repairs, oil changes, depreciation, interest, car washes, etc...

You then deduct the business percentage of those expenses. For instance if you use you car 15% of the time for business purposes and your expenses amount to ten thousand dollars, you can deduct $1,500 against your business income.

Under the mileage reimbursement rate plan, assume you drive 1500 miles for business purposes. Under the current rate of .485/mile, your deduction would be $728.

Items to keep in mind,

1) You must maintain a log of your mileage related to your car under either scenario.
2) Once you use actual expenses for an automobile, you must use actual expenses for the life of that automobile.
3) There are depreciation limitations related to luxury automobiles. Check with a tax adviser to know the limits.

In my experience, I find the mileage reimbursement rate to be the easier of the two methods and usually provides for the maximum deduction. You do not need to keep a shoe box full of gas receipts and the rate for most cars is fairly generous.