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Deduction Primer: Auto Expense Methods

Posted by Rhonda Spaulding on January 24, 2008

Whether you own a business or are an employee, there is a good chance that you will use your car for business at some point. If you are not reimbursed by your employer, these are deductible expenses on your income tax return. I think many make the mistake of doing and then planning. The key to getting the most out of your auto expense deduction is to first determine the method that will save you the most money and then keeping the appropriate records as you go. In addition to both of these methods, you can also deduct costs for parking, tolls and the business portion of finance charges.

Standard Mileage Method

If you use your car for business, you can simply track the business miles and claim a tax deduction for those miles which is multiplied by the IRS mileage rate (48.5 cents/mile). The mileage rate is a combination of depreciation, maintenance and fuel expenses.

Actual Expense Method

The actual expense method uses just that. You will deduct the business portion of the fuel, maintenance, repairs, tires, insurance, registration and any other auto costs. This method requires keeping all of the receipts and tracking all of your expenditures. If you do not have good records for your auto expenses, you will have to use the standard mileage method. There can be problems with taking the accelerated depreciation and your business use falls below 50 percent.

Depending on the circumstances, either one of these methods might provide a better deduction. Your tax preparer can calculate it both ways and determine which is better for you. It may vary from year to year so it is best to keep complete records so that you can take advantage of the method that gives you the largest deduction.


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