Car and Truck Expenses
Copyright 2010 by Morris Rosenthal - - contact info
Copyright 2010 by Morris Rosenthal
All Rights Reserved
Mileage or Actual Expenses Vehicle Deduction for Business Taxes
Warning: These pages are not intended as professional advice. They are presented "as is", reader beware!
If this is the first time you've filed for car or truck expenses and you have a leased vehicle, you have some extra thinking to do. If you claim mileage rather than actual expenses on a leased vehicle one year, you can't change your mind and start taking actual expenses later. This may sound trivial, but if you are in a travel heavy business, whether a delivery service, a landscaping or repair service, do extensive customer support or sales, the mileage deduction may end up being the largest business expense on your Schedule C. At over 50 cents a mile, it comes to hundreds of dollars a week for heavy travelers. However, if you are basically in the livery business, running a car service (informal taxi) or otherwise hiring out directly, you can't take the mileage deduction, you have to use actual expenses. The same is true if you are running a fleet of vehicles in your business (in case you're wondering, any number over four is a fleet).
Even if your car or truck is owned outright by you, as opposed to leasing, you can only take the mileage rate if you've been taking the mileage rate since the first year you started using the car for your business. The mileage rate used to be a set figure for the entire year, but starting in 2008, the IRS changed the rate halfway through the year to adjust for higher gas prices, It's not clear at this time if gas prices will be stable enough throughout 2009 for the rate to remain fixed. In addition to the standard mileage rate, you can take parking fees and tolls, which have gotten a lot easier to account for with the wide adoption of toll transponders that automatically bill your credit card. If you park on the street and make a note of the quarters you put in the meter in you mileage book, it's probably acceptable as a cash expense.
If you take actual expenses, you need to keep track of every dime you spend on owning the car, including gas, oil, service, repairs, tires, etc. A big expense, also deductible, is insurance, and you probably want to tell the insurer you are using the car for business. They will charge a little more for a business rider, but it's better than getting into an accident and having them deny your claim if it comes out that you were using the vehicle for business, which may be obvious from the contents (think pizza delivery). If you are using actual expenses, you can also depreciate the vehicle according to the standard formulas, and if it's a passenger car less than 6,000 pounds, you may be able to treat a new car as listed property on form 4562. There are depreciation limits for cars and light trucks, around $3,000 per year as of 2008. Publication 463 has the guidelines for car expenses and depreciation.
So here's the big caveat. When you fill out the mileage deduction on the back of Schedule C or Form 4562, there's a little question about whether or not you have proof that the business miles you are stating were in fact driven. I keep a little calendar or day planner book in my car and simply make a note of the mileage every time I use the car for business, which isn't that often these days. Depending on the business you are in, you may be able to generate the records electronically, or you may have some regular routes that allow you to procrastinate and write a report once a week or something. The IRS wants to hear that the proof is written, if you ever get audited they can ask for it, but it's not something you actually submit with your tax filing.
By the way, you can't take commuting miles as business mileage. If you have a home office and a satellite facility you visit every day but your main business activity is in the home, you can probably demonstrate that those miles aren't merely commuting. But if you don't have a home office, and you rent office space somewhere, driving back and forth to that office every day won't be deductible mileage. Only the driving you do after arriving at the office will count, unless you're talking about going to a conference out of town or something like that. Note, I didn't include all of the footnotes in the table below (from IRS publication 946) for car depreciations, I really just wanted to show the big jump in 2008.
Depreciation limits for a year are chopped up depending when you buy the car, so puchasing a new car on December 31st doesn't win a full year's deduction. On the bright side, the depreciation limits aren't reduced subsequent to purchasing the vehicle if you don't use it for the business the entire year, but they are reduce if you use it for anything other than business:-)
Planning A New Business | Estimating Business Taxes | Schedule C Deductions | Car Expenses | Freelancer and Contractor Payments | Section 179 Depreciation and Form 4562 | Employee Benefits and Pension Costs | Professional Services, Business Taxes and Fees | Hotel and Travel Expenses | Deducting Food and Entertainment | Inventory and Cost of Goods Sold | Sole Proprietor Statistics | Home Office Deductions | Self Employment Tax | The Self Employed Sole Proprietor