J. William Seabrooke CPA P.C.

If you  are using your personal automobile for business purposes, either as an employee or a business owner, you should understand the requirements for claiming this deduction.  IRS Publication 463 (“Travel, Entertainment, Gift and Car Expenses”) provides all of the important guidelines.  You can also use your search engine or go to the IRS website (http://www.irs.gov) and search using “car expenses” to obtain a list of Tax Topics that will provide additonal information and guidance.  Among the important topics to review, depending on your situation, are:

• Local and travel and travel away from your business home
• Categories of travel – personal, commuting, and business
• Standard mileage rate vs. actual expenses (including the major expense categories for the deduction)
• Leasing a car (special rules apply)
• Disposition (sale, trade, etc) of the car
•  Parking fees and tolls, tax credits
• Advertising on the car
•  Transporting tools and instruments
•  Union member’s trips from the union hall
•  Work location (temporary, multiple, no regular place, Armed Forces reservists)
•  Car pools
•  Office in the home
•  Requirements for car expenses

Insofar as the acceptable deduction expense methods are concerned, you are allowed to use either 1) the actual expenses which were incurred during the tax year or 2) the IRS standard mileage rate ( $ .51/mile in 2011).  This rate is applicable for any and all automobiles.

There are two methods which can be used to determnine the deduction for your business driving costs: the actual expense method or an IRS-set standard mileage rate.    

• Actual expense method.  You should keep accurate receipts and records for all of your automobile expenses.   Business  costs must be kept separate from personal and commute costs;  
• Standard mileage rate. If accurate recordkeeping is too difficult you may also use this method to determine your deductible costs. The standard mileage rate replaces the “actual expense method” for determining the costs of gasoline, oil, repairs, lease payments (if you lease), depreciation (if you own), and other car-related expenses.

 However, if you meet the recordkeeping requirements, you are allowed to use the method which provides the highest tax deduction.  However, there are seven situations in which you can not use the standard mileage method – (See “Standard Mileage Rate Not Allowed at http://www.irs.gov/publications/p463/ch04.html#en_US_publink100033930)  

Tax Tips:

1. 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.
2.   If you want to use the standard mileage rate for a car you lease, you must use it for the entire lease period. For leases that began on or before December 31, 1997, the standard mileage rate must be used for the entire portion of the lease period (including renewals) that is after 1997. 
3.   You must make the choice to use the standard mileage rate by the due date (including extensions) of your return. You cannot revoke the choice. However, in later years, you can switch from the standard mileage rate to the actual expenses method. If you change to the actual expenses method in a later year, but before your car is fully depreciated, you have to estimate the remaining useful life of the car and use straight line depreciation.
4. Documentation – Your automobile and vehicle records should be created (updated) during the actual time that you are on a trip.  You may use a handritten vehicle trip log, Excel spreadsheet, special purpose form etc.  However, be sure that your information includes, at a minimum,  all of the following:

• The date of the trip
• The odometer reading (both beginning and ending)
• The business purpose of the trip
• The destination to which you traveled

 Keep all of your records for at least three years after the due date of your tax return.  If you file your tax return early,  the clock will still start on the original statutory due date (usually March 15th for certain businesses or April 15th for individuals and other entities).  If you requested a six-month automatic extension of the time to file, then the clock will start at the later date (September 15th or October 15th).

Questions?  Contact the IRS (1-800-829-1040),  your tax preparer,  or your CPA.