As we begin to approach tax season, it’s time to collect all our tax-related documentation, including those pertaining to your vehicle. After all, your auto-related expenses can add up to be big deductions. Here’s a look at how you can deduct your automobile usage:
Employee Mileage Reimbursement
As an employee, the IRS does not allow you to deduct mileage for your commute to and from work. However, if you use your own automobile for business purposes, such as attending business meetings, you can deduct mileage as set by the IRS. The current deduction amount is $0.55 per mile for 2009.
However, there is a catch to personal deduction of employee mileage if your employer reimburses you for your mileage expenses. If your employer reimburses you less than $0.55 per mile, you may deduct the difference up to that amount. If your employer reimburses your mileage above the $0.55 per mile, good news! You may pocket the overage without having to report it on your personal taxes.
Standard Mileage for Business Use
If you, as a small business owner, use your personal vehicle for business use, you can also deduct the standard mileage rate for all business purposes. Whether you drive to client meetings, go to the bank to make deposits, or visit the office store for supplies, each mile can be deducted.
In addition, you can add parking fees (not tickets), fares, and tolls to the total deduction amount.
However, you may only use the mileage deduction if you use less than five vehicles during the year, and if you have not used a depreciation deduction (explained below) on the same vehicle in a previous year.
Actual-Cost Deduction Method
You may find that the Actual-Cost method can save you even more on your taxes. Using Actual-Cost, you can deduct depreciation of the vehicle and other actual expenses, such as oil changes and other maintenance costs, fuel, insurance, registration, and license fees. You must keep detailed records of your trips, including odometer readings and all receipts. Your actual business deduction is the percentage of use your vehicle for business purposes during the year.
If you use a “heavy” vehicle with a 6,000 gross-vehicle-weight rating (GVWR) for more than 50% of your business use, you can save even more. Larger vehicles are allowed a larger depreciation deduction as follows:
Year 1: 20.00%
Year 2: 32.00%
Year 3: 19.20%
Year 4: 11.52%
Year 5: 11.52%
Also, with the Section 179 Deduction allowance passed with the American Recovery and Reinvestment Act of 2009, you can deduct up to the full depreciation amount in the same year if the vehicle was placed in use as of 2008 or later.
Vehicle deductions can mean big tax savings for your personal taxes. Be sure you take the maximum deduction allowed by the IRS.