| Looking for an easy way to increase your business | | | | deductible under the Mileage Method -- interest and |
| deductions? Look no further than your driveway. | | | | taxes. |
| First, the general rule: your vehicle is deductible to the | | | | Now for the obvious question: Which method is |
| extent you use it for business. So, if you drive your car | | | | better? |
| 100% for business, all car-related expenses are | | | | Well, here's how I look at it. If you want to get the |
| deductible. | | | | highest deduction, you should "run the numbers" under |
| But if you use it less than 100% for business, do not | | | | both methods and then use whichever method results |
| despair. Less-than-100% use is very typical among | | | | in the higher deduction. You are allowed to pick |
| small business owners and the self-employed -- you'll | | | | whichever method you want. |
| still come out way ahead by keeping good vehicle | | | | But once you pick a method, be careful to follow the |
| expense records. | | | | rules on "switching" from one method to the other: You |
| For example, if you drive your car 75% for business, | | | | can switch from the Mileage Method to the Actual |
| then you get to deduct 75% of your vehicle expenses. | | | | Method, but generally are not allowed to switch from |
| Now to the fun part. There are two methods for | | | | the Actual Method to the Mileage Method. |
| reporting your car expenses: | | | | Having said that, let's be practical. If you hate record |
| 1. Actual Expense Method | | | | keeping, use the Mileage Method. It's much simplerand |
| 2. Mileage Method | | | | faster. You won't have to keep all those receipts. |
| With the Actual Expense Method, you have to keep | | | | Even the Mileage Method requires some record |
| track of all your vehicle related expenses, such as: | | | | keeping, however. You should keep a log that |
| gasoline, oil, maintenance & repairs, insurance, | | | | documents the business use of the vehicle. Here are 3 |
| license & registration, wash & wax, supplies | | | | IRS-approved car logs: |
| and equipment, depreciation expense (including Section | | | | 1. Daily Log. Yep, you just record all business miles for |
| 179 deduction), lease payments, loan interest, state and | | | | all 365 days of the year. |
| local taxes. You add up all those deductions and | | | | 2. 90-Day Log. Here's a little-known rule -- instead of |
| multiply the total by your business use percentage, | | | | keeping mileage records for the entire year, you can |
| which is determined by dividing business miles by total | | | | get by with just a representative portion of the year -- |
| miles driven. | | | | and a 90-day period is considered an adequate |
| The Mileage Method works like this: instead of tracking | | | | representation of the entire year. |
| all the actual expenses listed above, you only need the | | | | So you would keep a Daily Log for a 3-month period, |
| number of business miles driven, which is multiplied by | | | | say January through March. To get your annual |
| the standard mileage rate published each year by the | | | | mileage total, you multiply the 3-month total by 4. |
| IRS. | | | | 3. One-week Log. Here's another short-cut: The IRS |
| For 2009 the mileage rate is 55 cents per mile. If you | | | | also allows you to keep a log for just the first week of |
| drive your car 10,000 miles for business in 2009, your | | | | each month. Then you multiply that week's mileage by |
| deduction is at least $5,500, regardless of what your | | | | 4 to get the monthly total. |
| actual expenses might have been. | | | | Regardless of which method you use, there's a |
| NOTE: There are 2 actual expenses that are also | | | | goldmine of deductions sitting right there in the garage. |