| Are you a sole proprietor who uses a personal car for | | | | years. Then you can see if taking the section 179 is |
| business activities? You may be wondering which is a | | | | worth it or not. |
| better deduction at tax time: the standard mileage rate, | | | | Tip 4 - You Can Write Off More: Taking the standard |
| or actual expenses. I'm a big fan of the standard | | | | mileage rate may allow you to write off more than the |
| mileage rate. Here's why. | | | | value of your vehicle over a period of years. This is |
| Tip 1 - It's Easier: To figure the standard mileage rate | | | | true for people who drive many business miles each |
| deduction, you just need to know the number of | | | | year, and who keep the same car for a number of |
| business miles driven during the tax year. To figure the | | | | years. |
| deduction for actual expenses, you need to know the | | | | It works like this because depreciation is built into the |
| total of those expenses, then somehow determine the | | | | mileage rate. So if you use the same car year after |
| business portion of them. Usually, this is done by | | | | year, driving many business miles each year, eventually |
| determining a ratio between the number of personal | | | | you will write off more than the value of the vehicle. |
| miles vs. the number of business miles. So in order to | | | | And you definitely take more depreciation than you |
| accurately determine the expense, you need to know | | | | would have using actual expenses. When using actual |
| the business miles anyway. Why go through the extra | | | | expenses, once the depreciation deduction is gone, it's |
| step of keeping track of actual auto expenses if you | | | | gone. |
| don't have to? | | | | Tip 5 - Keep Good Records: Keep a log book in your |
| Tip 2 - It's More Flexible: As a general rule, it is usually | | | | car and record the following information each time you |
| better to take the standard mileage rate the first year | | | | drive the car for business reasons: |
| you put a car or truck into service, rather than actual | | | | - Date |
| expenses. This allows you some flexibility in | | | | - Business Reason/Place Visited |
| subsequent years, because you can choose which to | | | | - Beginning Odometer Reading |
| take after that - actual expenses OR standard | | | | - Ending Odometer Reading |
| mileage rate. | | | | Tip 6 - It's Easily Defended: If you get audited and |
| Sometimes it might be better to take a section 179 | | | | you've kept a good log book, I can almost guarantee |
| deduction on the vehicle the first year it is placed in | | | | that your mileage deduction will remain intact. IRS |
| service. When this is done, the taxpayer has made the | | | | auditors view mileage deductions quite seriously, and |
| election to take actual expenses that year. This is an | | | | will carefully scrutinize this deduction if you return is |
| important election that must be considered carefully! | | | | selected for an audit. Make sure you can substantiate |
| Taking a section 179 deduction sometimes allows for | | | | this important deduction with a well-maintained mileage |
| more tax savings over a period of years. But not | | | | log. |
| always. It depends on how long you own the car and | | | | Tip 7 - Less Paperwork: When using actual expenses |
| use it for business. | | | | instead of the standard mileage rate, a certain form is |
| Tip 3 - It's More Flexible, Again! The reverse is not true. | | | | needed, called a 4562. This form is needed in order to |
| If you take actual expenses the first year you put a | | | | compute the depreciation on the vehicle. If you use the |
| car or truck into service, you must continue to use | | | | standard mileage rate, and don't need to depreciate |
| actual expenses thereafter. Again, remember this | | | | any other property, the mileage deduction will be |
| when taking a hefty Section 179 deduction the first | | | | shown on page 2 of your Schedule C. |
| your vehicle is placed in service. Make sure it will be | | | | Final Thoughts |
| worth it in the long run. | | | | Auto expenses represent an important deduction for |
| In order to determine this, you will need to estimate | | | | most sole proprietors. Make sure you select the |
| how long you plan to use this particular car for | | | | method that allows for the most tax savings over a |
| business, and how many miles for those years you will | | | | period of years, and that you can support your |
| drive it for business. With this information, you can | | | | deduction with adaquate records. |
| estimate the mileage deduction over a period of future | | | | |