Business mileage deductions could cut your tax bill
by Feb 19th 2010 2:00PM
You may deduct car-related expenses for transportation away from home for business trips, including conferences and seminars. You can also deduct car-related expenses when your work takes you away from your workplace. This includes traveling from one workplace to another in the course of your job or business; visiting clients, vendors or customers; and going to a business meeting away from your workplace.
You may not deduct the costs of commuting to and from work. This is true even if your commute is lengthy or if you generally telecommute. However, if you have a home office and a second office at a different location, you can deduct the cost of travel to and from your second office if you do business at your home office before you leave home -- and after you return. For this to work, your home office must be your actual principal place of business and not merely for your convenience.
You generally can use one of the two following methods to figure your deductible expenses: standard mileage rate or actual car expenses.
Standard mileage rate
Using the standard mileage rate is fairly simple. You merely calculate your business miles and multiply that total by the standard mileage rate. For 2009, the standard mileage rate for business use is 55 cents per mile. That can really add up. If you travel, say, 5,000 miles per year for business purposes (that's about 40% of the average miles driven per year), your potential mileage deduction would be $2,750.
If you use the standard mileage rate in any tax year, you cannot deduct your actual car expenses for that year, which makes sense. That means you cannot take depreciation for your vehicle or claim lease payments, maintenance, repairs, gasoline, oil, insurance or vehicle registration fees.
The standard mileage rate is not allowed for certain vehicles for hire, such as taxicabs or hearses.
If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then in later years, you can choose to use either the standard mileage rate or actual expenses. If you depreciate your car for business purposes, further restrictions apply.
If you prefer, you can use your actual expenses to figure your deduction for the use of your car. Actual car expenses include depreciation, gas, oil, repairs, maintenance, tires and insurance. It also includes the cost of any lease payments.
Business and personal use
If you use your car for business and personal reasons, you must figure the mileage used for business whether you use the standard mileage rate or the actual expenses method. If you use the actual expenses method, you must prorate the expenses based on mileage and deduct only the portion attributable to business. For example, if you drove 30,000 miles this year and 15,000 miles of that total were for business, you may properly deduct 50% of your car-related expenses on your return.
You report your car-related expenses on Part II of federal form 2106, Employee Business Expenses. The form 2106 must be filed with a form 1040 or 1040NR; you may not claim car-related expenses on a form 1040-EZ.
To substantiate your claims, be sure to keep good records. You'll find tips for keeping records -- including an app for that -- here.