CNB TAX PREPARATION SERVICES
AUTO EXPENSES
Are you getting the most from your Auto Expenses?
If you use a car for business, you have two choices for claiming deductions:
1. Deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers’ salaries, and depreciation.
2. Use the standard mileage deduction and simply multiply 48.5 cents (the rate for 2007, 2006's rate equals 44.5 cents) by the number of business miles traveled during the year. Your actual parking fees and tolls are separately deductible under this method.
*Tip: The actual method allows you to claim accelerated depreciation on your car, subject to limits and restrictions not discussed here. The standard mileage amount includes an allowance for depreciation. Opting for the standard mileage method allows you to by-pass the limits and restrictions and so is simpler, but often less advantageous in dollar terms.
*The standard rate may understate your costs, especially if you use the car 100% for business, or close to that percentage.
*Once you choose the standard mileage rate, you cannot later use accelerated depreciation if you opt for the actual cost method in a later year. You may then use only straight line.
Here is how to make the most of your auto deductions
Keep careful records of your travel expenses. Your tax advisor won’t be able to determine which of the two options is better for you if you don’t know the number of miles driven and the total amount you spent on the car.
Furthermore, the tax law requires that you keep travel expense records and that you give information on your return showing business versus personal use. If you use the actual cost method, you must keep receipts.
*Consider using a separate credit card for business, to simplify your record-keeping.
*: Self-employed and employees who use their cars for business can deduct auto expenses if they either (1) don’t get reimbursed, or (2) are reimbursed under an employer’s “non-accountable” reimbursement plan. In the case of employees, expenses are deductible to the extent that auto expenses (together with other “miscellaneous itemized deductions”) exceed 2% of adjusted gross income.