Autos, trucks, vans, minivans, trailers, SUVs, whatever you’re using, it’s probably one of your most costly assets. It’s also your best source of business deductions, since you’ve got to have a set of wheels for personal use
Vehicles are essential to your life and your businesses. Practically everyone has at least one car at home. You may have several, depending on your family size, hobbies, interests, and business requirements.
When it comes to using cars for business, select just one of those vehicles as the business vehicle. When more than one family member is involved in the business, assign one business vehicle to each person as a business vehicle, or have several family members or staff use one vehicle. Try not to keep switching around. Consistency of use makes it simpler to track business mileage. If you must use more than one vehicle, keep logs in each car to track total mileage and business mileage. Being able to track the actual miles may be more important for a “fleet” than for a single car.
When your business required the use of a single-purpose truck or van, such as an outfitted plumbing truck or delivery van, you shouldn’t have problems establishing that you used it 100 percent for business. That vehicle is not fit for personal use. Take a photo of the vehicle full or your usual equipment or inventory and put it in your tax file.
Clearly, certain vehicles really are used 100 percent for business by their very nature. But for regular vehicles, don’t expect the IRS to allow you 100 percent business use. The IRS realizes that even if you have several cars, sometimes you’re going to use your business car to shop for groceries, pick up your children, or run some personal errands. The IRS expects that you will record a reasonable amount of personal use.
Some of my clients have a separate business vehicle, or they will work from home and practically all their driving is business. For them, it’s easier to track the personal miles than the business miles. While they may not drive many miles during the year, the larger percentage of the miles they do drive will be business.
Using the Standard Mileage Rate
One you have the total miles and the business miles, enter them on the second page of Form 4562. If you’re using the mileage rate, multiply the current year’s rate by the total business miles and pop it onto the “Car and truck expenses” line of your personal tax return’s Schedule C or onto a schedule on your business return. Steve Hopfenmuller at the Small Business Taxes and Management Web site maintains a list of mileage rates from 2003 to the present, available at http://www.smbiz.com/sbrl003.html. Visit that site if you need the most current rates. Or log into TaxMama.com’s Quick Look-Ups resource.
You can see a sample of mileage rates from previous years in table 8.2. Built into the standard mileage rate is a certain amount of depreciation per mile. Don’t worry about the number until you sell the car. Then add up the miles you’ve deducted each year and multiply the sum by the depreciation rate for each year.
Just a little note that no one seems to tell you – if you take advantage of any of the special depreciation methods, including the bonus depreciation or Section 179, you may not use the mileage method to deduct your car expenses for the life of the vehicle.
Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.