In recent year-end planning meetings, several of my business-owner clients asked their accountants if they could “find” more deductions. Legitimate ones, of course.
Here’s one that is often goofed up by taxpayers, but could result in worthwhile tax savings. If you drive your vehicle for business, you are entitled to take deductions using two different methods. Many advisers suggest considering both methods to figure out which will produce a bigger deduction.
The first method involves calculating the actual costs of using your vehicle, which include oil, gas, tolls, depreciation, licenses, lease payments, insurance and repairs. If you want to use this method, you have to keep a detailed log of your expenses. This log needs to include miles driven for business use versus for personal use. You can then multiply your total expenses by the percentage of time driving your car for business use (unless you can otherwise show through your record-keeping that certain expenses related exclusively to business use). More information can be found in IRS publication 463.
The second option is to use the standard mileage rate issued by the IRS each year. For 2012, business use of vehicles will result in a deduction of 55.5 cents per mile, the same rate as the second half of this year. For many of us, this standard mileage rate is easier to keep track of, because you simply have to keep a log of miles driven for business. if you are a business owner, this means that your company can reimburse you for this amount, which results in a tax deduction for the business.
In either case, it is important to think about what it means to drive your car for business. Your commute to and from your home to your office does not count. Instead, driving from one office to another or from one job site to another would count.
