Can I write off my personal car?
Tax deductions for small business owners.
Evelyn Chow, Manteca, Calif.
What percentage of the purchase price can I claim on my taxes if I’m using my car for three part-time small businesses?
By Diana Rosenthal, Fortune Small Business Contributor
Dear Evelyn: Miles driven matters more than the price of the car when writing off your business-related car expenses. So take good notes, break down how much wheeling around you do for each business, and deduct accordingly.
There are two main ways to calculate your total deductions – one easy (standard mileage) and one complicated (normal deduction). The former is more suitable for business owners who drive a lot for work, while the latter is more advantageous for newer cars or less mileage. It’s a good idea to switch methods as a car gets older and the normal deduction shrinks.
The simpler method is called the standard mileage rate, which primarily requires two numbers: total business miles and the IRS’s standard mileage rate. Add up the former by recording all cruising around — business and personal — in a daily log for the designated car.
Be sure not to confusing commuting with business driving. “[The drive from] home to work and work to home is not deductible,” says California CPA Bob Weinberg. “If you’re an outside sales person and you’re seeing nine customers a day, the first and last trips to clients from and to your home are not deductible miles, but everything in between is.”
Once you’ve added up your total business miles, multiply that number by the IRS standard mileage rate for the year your car was first used for business purposes. For example, if you started using a car for business in 2008, the rate is 50.5 cents per mile.
See the IRS web site for present and past rates. Business-related parking fees and tolls can also go toward the total deduction amount, according to the IRS web site.
When to write off the cost of a vehicle
The drawback: you can’t use the standard mileage rate to write off depreciation, lease payments, and general expenses such as gasoline. To deduct these costs, use the normal deduction, also called the actual car expenses method. The formula: business miles divided by total miles multiplied by the sum of gas, repairs, maintenance, insurance, interest on car loans, lease payments, plus maximum depreciation, says Scott Haislet, a member of the California Society of CPAs. The IRS keeps all tax guidelines online.
There’s also the price of the car to consider. The IRS’ luxury auto tax rules limit depreciation write-off for the portion of the car’s price that is in excess of $17,000 for the first few years of use. In other words, a new Rolls Royce and a Saturn will receive the same depreciation," says Stephen Nelson, who heads a Washington-based tax firm. “They’re not going to let you tool around in your Silver Cloud and use tax law to subsidize it."
Is it worth it?
Figuring how much to deduct for your vehicle’s depreciation and lease payments is tricky, so ask CPA to help you organize your car expenses and maximize your deductions.
Unless you run a high-mileage business, such as a real estate agency or a construction company, the return may not be worth your time. Nelson says the typical small business owner accumulates around 1000 to 2000 business miles a year. That works out to a $500 to $1000 deduction, or about $150 in tax savings.
And the CPA will probably charge you a significant chunk of that just to put it on your return. “The car thing is a huge headache,” says Nelson. “Everyone thinks there’s a ton of money there, but there isn’t.”
Give us your advice: Check out recent “Ask & Answer” questions.
Related links:
Your business vehicle: lease or own?
From CPA, Sioux City, IA Be sure not to confusing commuting with business driving. “[The drive from] home to work and work to home is not deductible,” says California CPA Bob Weinberg. “If you’re an outside sales person and you’re seeing nine customers a day, the first and last trips to clients from and to your home are not deductible miles, but everything in between is.”
THE PROPER ANSWER IS:
For Outside sales people with qualified home office-
ALL miles driven to see clients are unreimbursed expenses for Form 2106, including the mileage to the FIRST client and home from the LAST client. Please do better research before telling readers they cannot deduct the first and last trips of the day.
Your mileage rate is incorrect for business use of your personal vehicle. Starting July 1 the IRS rate is 58.5 cents/mile. This is up from your quoted 50.5 cents which is only for the first 6 months of '08