| Taxes are your single biggest expense against your | | | | business. For example, if you drive 20,000 miles during |
| income. Knowing what deductions you're entitled to | | | | the year, and 15,000 miles are for business, and the |
| can save you hundreds, if not thousands of dollars. | | | | remaining miles are for personal use, then you can |
| This article will cover vehicle related deductions that | | | | deduct 15,000/20,000 or 75% of all those expenses. |
| often get overlooked by home-based businesses. Our | | | | In addition to the actual cost method, you can deduct a |
| focus will be for individuals with no employees, | | | | depreciation value. This is a value that reflects the loss |
| however many of the deductions will apply to small | | | | of value to the car over time due to wear and tear. |
| business and large corporations as well. | | | | The simplest example of this would be if you bought a |
| There are two ways to calculate Vehicle deductions: | | | | new car in 2006 for $20,000, you can deduct 20% of |
| 1. Standard mileage for 2006 is $0.445/mile | | | | the value the first year times the percentage of |
| 2. Actual cost method + depreciation | | | | business use. So if you use the car 75% for business, |
| Let's start with the "standard mileage rate". You can | | | | you calculate your deduction as follows: |
| write off each mile you drive that is related to your | | | | $20,000x75%x20%=$3000. |
| business at $0.445/mile. This is called the "standard | | | | For the following years, you use the following schedule: |
| mileage rate". So if you drive 10 miles to visit a client, | | | | First year: 20%. (Half a year) |
| then 10 miles to return to your home office, you can | | | | Second year: 32% |
| deduct 20 miles. 20x.445=$8.90. However, you cannot | | | | Third Year: 19.2% |
| deduct all your miles, such as going to the grocery | | | | Fourth Year: 11.52% |
| store. You can see how this can add up to a | | | | Fifth Year: 11.52% |
| substantial amount. Some professions such as real | | | | Sixth Year: 5.76% (half a year) |
| estate require a lot of driving. | | | | What if you trade an old car you were using for |
| In addition to your standard mileage rate, you can also | | | | business for a new car? You would have to |
| deduct parking fees and tolls in connection with your | | | | recalculate a "basis" cost for depreciation. You also |
| business travel. If you have a loan on the car, then you | | | | have a different depreciation schedule if you use the |
| can deduct the interest paid on the loan to the extent | | | | car less than 50% for business or if you buy a hybrid |
| that you use the car as a business expense. So if you | | | | electric car. |
| use your car 50% for business and 50% for personal | | | | We have by no means covered all the twists and |
| use, then half the interest paid on the loan is deductible! | | | | turns that would affect how you calculate your |
| Remember, this is for self-employed only. You cannot | | | | deductions. Fortunately a popular tax software like |
| deduct interest on a loan if you are an employee using | | | | TurboTax or Taxcut will walk you through each step |
| the car for your job. | | | | in calculating your deduction then give you which |
| The standard mileage rate is by far the simplest, but | | | | method yields you the biggest deduction. If you're going |
| may not offer you the largest deduction. Instead, you | | | | to use a tax accounting service, make sure you go |
| can choose the "Actual Cost Method". In this method, | | | | over these kinds of deductions with the tax |
| you deduct all the expenses related to owning and | | | | professional. Bring this article with you and ask them if |
| maintaining your car. This would include and is not | | | | the have experience with how to prepare returns |
| limited to oil changes, repairs, tires, brakes, tune-ups, | | | | small businesses and all the deductions that are |
| washing and waxing, auto-club memberships, license | | | | available to you. If they hesitate or stutter, go |
| plates, and car insurance. Again, all of these expenses | | | | somewhere else. If could cost you thousands. |
| are deductible for the portion that you use the car for | | | | |