Business Automobile Expenses

Brigitte A. Thompson
© 2004

The miles that you drive which are related to the operation of your business, or the actual expenses required to maintain your automobile can be deducted from your income at tax time. There are two ways you can utilize your vehicle as a business deduction.

METHOD 1- An IRS Adjusted Mileage Allowance. During 2004, you can use 37.5 cents per mile. With this method you need to keep track of the miles you drive which are exclusively for business purposes.

In order to claim this deduction, the IRS requires you to keep a written log. On this you will need to record the date of the trip, your beginning odometer reading, the ending odometer reading, the total miles driven, your starting location, your destination, as well as define your purpose for the trip.

METHOD 2- The Actual Expense Deduction. To claim your automobile deduction with this method, you need to keep track of all receipts related to the operation of your business vehicle. You can include in this amount gasoline, oil, repairs, license, insurance, depreciation, parking fees, and tolls. The downside of this method is that you can only deduct a portion of these expenses as a business expense. That portion is determined by looking at the total miles driven for business and
comparing that to the total miles the car traveled that year.

For each trip, either business or personal, you need to record the appropriate information in your written mileage log.

It is important to note that the IRS has specific rules on this deduction. If you choose in your first year of business to use the Actual Expense method, you may not switch to the IRS Adjusted Mileage Allowance in a later year on that same car.

If you choose IRS Adjusted Mileage Allowance in the first year of business, you lose the ability to take a great first year depreciation expense on your car. However, it is possible to switch from the IRS Adjusted Mileage Allowance method to the Actual Expense method in later years and depreciate your car with a smaller deduction using the straight line method of depreciation.

With accurate records, either method can create a nice tax deduction!

All information is based on the current federal tax laws of the United States. Since these laws are subject to change, neither the author nor assume liability for modifications that occur after the creation of this work. Every effort has been made to ensure this information is as accurate and complete as possible. These articles contain general information for businesses and are offered as an overview of the law.



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