AUTO EXPENSE DEDUCTION: IRS PUBLICATION #463
If you use your vehicle (car, motorcycle, pickup truck, panel truck, van) for business or income producing purposes (such as rental real estate activities), you may be able to deduct the BUSINESS PERCENTAGE USE on your tax return.
Notice it is the business percentage use that may be deductible.
The personal use of a vehicle is never deductible.
Commuting mileage (when you leave home in the morning and go to your workplace and when you leave your workplace in the evning to go home) IS NOT DEDUCTIBLE (unless you qualify for the home office deduction). NOTE: The home office deduction itself has a specific set of rules you must meet to qualify.
Commuting mileage is personal mileage (not business mileage) and is thus deemed personal use of an auto.
To figure your business percentage use (for each vehicle) and for (each year), you divide your business mileage by your total mileage for the year. This means you must keep adequate documentation for mileage. The IRS does not allow a deduction for estimating or guessing mileage; or if you do not keep adequate proof of your mileage. This information must be included on your tax return and applies to each vehicle for which you are claiming expenses for.
You can use one of two methods to figure your deductible vehicle expenses:
1-Standard Mileage Rate.
2-Actual Vehicle Expenses.
STANDARD MILEAGE RATE METHOD RULES:
Note: If you use the standard mileage rate method you cannot deduct your actual auto expenses.
1-You must choose this method in the FIRST YEAR the vehicle is availabe for use in your business.
2-For a leased vehicle, you must use this method for the entire lease period, including renewal periods.
3-You must make the choice to use this method by the due date (including extensions) of your tax return. You can't revoke the choice.
4-You cannot use this method if you:
(a) Use 5 or more vehicles at the same time
(b) claimed a depreciation deduction for the vehicle using any method other than the straight line method
(c) claimed a section 179 deduction on the vehicle
(d) claimed the special depreciation allowance on the vehicle
(e) claimed actual expenses after 1997 for a car you leased.
NOTE: You can use this method if you used a vehicle for hire (such as a limo or taxi) unless this method is otherwise not allowed, as discussed above.
The deduction is as follows: IRS Standard Mileage Rate per business mile for the year X Number of Business Miles for the year.
Note: The IRS usually changes the standard mileage rate allowed each year.
1-Auto Loan Interest-If you are an employee, you can't deduct any interest paid on an auto loan (even if you use your vehicle 100% for business). If your self-employed, you can deduct the businesss use percentage on Schedule C, Form 1040.
2-Personal Property Taxes-If you itemize deductions on Schedule A, Form 1040, you can deduct state and local personal property taxes on motor vehicles (even if you use the standard mileage rate of if you don't use your auto for business). If your self-employed, you can deduct the business use part of state and local personal property taxes on Schedule C, Form 1040 (and if you itemize your deductions, you can include the remainder on Schedule A, Form 1040.
3-Parking Fees & Road Tolls-You can deduct any business related parking fees and road tolls.
ACTUAL EXPENSE METHOD RULES (if you don't use the Standard Mileage Rate Method)
Actual Vehicle Expenses include:
Depreciation (special rules and limits apply)
Interest on auto loan
AGAIN: It is ONLY the business use percentage that is deductible.
You can never deduct auto fines and penalties (parking or speeding tickets).
Leased Vehicles Rules
1-You can use the standare mileage rate method or actual expense method to figure your deductible vehicle expenses.
2-If you use actuual expense method:
(a) you can only deduct the business use percentage part of each lease payment
(b) you must spread any advance lease payments over the entire lease term
(c) if you lease for 30 days or more, you may have to reduce your lease payment deduction by an "inclusion amount"
RECORDKEEPING & IRS AUDITS
Auto deductions ARE A HIGH AUDIT ITEM because they are personal in nature and often subject to taxpayer abuse, errors, and fraud.
Per IRS Rules, you MUST keep accurate and complete records to take and prove your vehicle expenses and deducitons.
Records can be kept in electronic or written form, accurate, complete, and timely.
Estimates and guessing is not allowed.
For EACH vehicle and for EACH year you MUST keep the following records as applicable:
1-Description/Year/Date/Model of the vehicle
2-Date placed in service for business use
3-Total Mileage, Business Mileage, & Personal Mileage
4-Purchase Invoice or Lease Agreement
5-For business mileage use a daily or weekly log with the following information:
(b) Location(s) where business was conducted
(c) Business purpose and who you conducted business with
(d) Business mileage
6-For EACH vehicle expense you must keep proof such as
(a) Canceled check, credit card statement, or electronic payment statement
(b) supplier or vendor bill or invoice or reciepts
NOTE ON PERSONAL OR COMMUTING MILES
Commuting miles (going from home to work and then from work to home) is NEVER deductible. This is personal use.
But, if you operate your business from your home and have a home office, you can deduct mileage leaving your home and returning.
Once you arrive at your work location, you can deduct business miles you've driven visiting clients/customers; prospects; suppliers/vendors and so on during the day (provided you keep proper records).
CLAIMING 100% BUSINESS USE
As stated, auto deductions are a very high audit area. Claiming 100% business use of a vehicle could very well result in an audit of your tax return. That said, if you do have a unique or rare situation where you do in fact, use a vehicle 100% for business, claim your deduction. Just be sure to have the appropriate documentation to back everything up in case of an audit.
The deduction for vehicles is a high audit area and requires proper recordkeeping.
No estimates. No guessing.
Without proper records, your tax preparer should not allow any deductions.
CALL NOW 561-746-1926 or 561-339-8102 if you have any questions or concerns or would like to schedule a FREE, Confidential, No-Obligation Tax-Saving Consultation.