It takes a little record keeping to claim the standard mileage rate for a car on your taxes. Some taxpayers prefer to claim actual expenses in order to avoid that hassle. Actually, the actual expense method requires even more record keeping, and you must maintain mileage records regardless. However, they must be accessible for inspection in the event of an audit. These records won’t be filed with your taxes.
You can write off the portion of your auto expenses related to your business if you use your car to get supplies or inventory for your company. You must first keep track of your mileage. Make it a habit to record your mileage on January 1st each year. You could use a simple pocket calendar that you keep in your glove box or a spreadsheet (like the one in the PDF example linked below). Whatever the approach, make sure to record it in writing. Keep track of your starting and ending distances, your route, and the trip’s goal. If need be, scribble your mileage on a piece of paper. You can finish your spreadsheet when you get home by adding the last few pieces of information. Add up the round-trip mileage you only drove for business. The remaining miles on your car this year are either for commuting or personal use. Automobiles are regarded as listed property. As a result, you need to keep records that show business use.
You won’t have to drive anywhere if your office is in your home. However, if you work in an office on Main Street rather than your home, your commute miles are the distance from your home to that location and back. Part IV of your Schedule C should have blanks for you to record the number of miles you traveled for work, personal use, and commuting. You figure your total mileage for the year by subtracting your odometer reading on based on the final odometer reading of the previous year, January 1.
Only one of the two reimbursement methods—Actual Expenses or Standard Mileage Rate (SMR)—may be claimed in a given year.
Standard Mileage Rate
If you use the standard mileage rate, you can write off a specific amount (48.5 cents in 2007) for each business mile you drove during that year. To calculate your standard mileage deduction, multiply the total number of business miles you drove by 48.5 cents per mile. Part IV of your Schedule C includes a calculation for this sum, which is then subtracted in Part II, line 9, of the same document. Part IV, Schedule C contains spaces for commuting and personal miles, but those miles are not tax deductible.
In addition to the standard mileage rate, you may also deduct the business portion of parking and toll costs as well as the business portion of state and local personal property taxes paid on the vehicle. The remaining state and local personal property taxes on the vehicle may be deducted on your Schedule A if you choose to itemize your household deductions rather than take the standard deduction.
Example:Dawn drove her car a total of 4530 miles this year. She drove her car 453 business miles this year. The result is $453 multiplied by 48.5 cents, which equals $219.70. She only needs to move the $219.70 to line 9 of her Schedule C if she has no parking fines or personal property taxes to report on her car.
Dawn will calculate the percentage of business miles she drove by dividing the business miles by the total miles, assuming she has parking fees and local, state, and personal property taxes on her car. (453 ÷ 4530 = 10%) She will now separately add the personal property taxes on her car from the state and local governments and her parking costs.
She will multiply $150 by 10% to calculate 10% of any parking fees she paid out in total. Dawn will be able to subtract $15 in addition to the $219.70 for the standard mileage rate. After that, she will enter $234.70 on line 9 of Schedule C.
Dawn will calculate her business percentage (200 x 10%) if the state and local personal property taxes for the car came to a total of $200. On line 23 of her Schedule C, she can deduct an additional $20.
The first year the vehicle is available for use in your business, you must choose the standard mileage rate if you want to use it. Then, in subsequent years, you can decide whether to use actual expenses or the standard mileage rate. However, if you switch from the SMR to actual expenses and want to deduct depreciation, you must use straight-line depreciation rather than an accelerated method, estimating the car’s remaining useful life.
When the SMR is NOT allowed:
In the case of a taxi, you cannot deduct mileage.
You simultaneously use five or more cars for business purposes.
You’ve previously used the same car’s accelerated depreciation method.
With regard to the vehicle, you deducted Section 179.
On a vehicle you leased after 1997, you made an actual expense claim.
You are a rural mail carrier who received a qualified reimbursement
The first year you used the car for business purposes, you claimed actual expenses on the same vehicle.
Beware: Your basis will be reduced by a certain amount (17 cents per mile deducted in years 2005 and 2006) when you sell the vehicle or switch to actual expenses for depreciation purposes.
