If you use your car 100 % in your job or business, you may deduct its entire cost of operation (subject to certain limits on depreciation). However, if you use your car for both business and personal purposes, you may deduct only the cost of its business use (business percentage use).
You can figure the amount of your deductible car expense by using one of two methods; the Standard Mileage Rate Method or the Actual Expense method.
Under the Standard Mileage Rate Method, simply multiply the number of business miles for the year by the IRS amount allowed per business mile (which changes each year) to figure your deduction. You may also deduct business parking fees and road tolls. You cannot deduct any other car expenses.
To use the Standard Mileage Rate Method;
For a car you own, you must choose to use it in the first year the car is available for use in your business. In later years, you can choose to use the standard mileage rate method or the actual expense method.
For a car you lease, you must use the standard mileage rate method for the entire lease term (including renewals).
You must not operate 5 or more cars at the same time.
You must not have claimed a depreciation deduction for the car using any method other than straight line.
You must not have claimed a Section 179 deduction on the car.
You must not have claimed the special depreciation allowance on the car.
To use the Actual Expense Method:
You must keep detailed records of the actual costs to operate the car including gas, oil, repairs, maintenance, interest, insurance, registration fees, licenses, and depreciation (within limits) or lease payments. You may also deduct business parking and road tolls.
Finally, the law requires that you document and substantiate your business use of a car by keeping adequate records for all carexpenses, total mileage, business mileage, and personal mileage for the year.
This article was written by Donald M. Scherzi, CPA, CFP, LLC
Mike Lupo, SCORE Counselor
Visit us at: www.scoresouthflorida.net