As a business owner or someone who uses their vehicle for business purposes you need all the help you can get when it comes to taxes. Deductions are an important part of the financial health of your business and they also ensure that you are reimbursed for necessary expenses. This is especially true for vehicles. Decide if (and how much) you can deduct from your taxes from the use of your vehicle.
Standard Mileage Rates:
The standard mileage rate is a system used by the IRS to reimburse you for the amount of miles that you drive for purposes such as: business moving or medical driving in service of charitable organizations. The IRS has set the 2012 standard mileage rates as follows:
- For Business: 55.5 cents per mile driven
- For Medical or Moving: 23 cents per mile driven
- Charitable Service: 14 cents per mile driven
In the first year of using your vehicle for business purposes above you can choose mileage or actual expenses. If you choose the mileage method in the first year you can alternative between the two methods in future years. If you choose the actual expenses in the first year you are required to calculate the expenses using the actual expenses for the life of the vehicle.
In order to deduct the actual automobile expenses you need to track the business miles to calculate the business usage but that is all you do with the miles. You can take your business use percentage of the gas insurance depreciation interest on vehicle loan license tax registration fees oil tires repairs lease payments and garage rental.
However you cannot deduct the cost of all these things outright but instead must determine your deduction by business usage. The basic formula for arriving at your deduction is as follows:
The business usage formula is to take your business miles and divide them by the total miles. Or:
- Business Usage = business miles/total miles
Next your business usage is then multiplied by your actual expenses to arrive at your deduction. Or:
- Deduction = business usage x actual expenses
Your accountant can handle the calculations when you file your taxes but keeping all your receipts and cataloging your miles will give you an idea of what to expect for your deduction.