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19755 East Pikes Peak Ave, Suite 101, Parker, CO 80138

19755 East Pikes Peak Ave, Suite 101, Parker, CO 80138

Top Ten Ways to Write Off Your Car Expenses (and a bonus!)

 

  • Business use – if you have self employment income (and therefore file Schedule C or Schedule F), keep track of your mileage.  It is deductible.  Best way to keep track – get a little mileage log book and write down odometer reading at the beginning and end of your self employment related trip.  Or try a phone app like milebug or mileageledger.  Standard mileage deduction is 50 cents per mile for 2010 and 51 cents per mile for 2011 – nothing to sneeze at!
  • Business use – if you own a company and you drive a lot, consider having your company buy and maintain your car.  You must still maintain a mileage log to determine the percentage of personal versus business usage of your car at the end of the year, and you may have to either reimburse your business for the personal percentage or claim it as self employment.  But the good news is…the company can pay for all of the expense related to owning (or leasing) and operating the car—insurance, tires, oil changes, gas, license fees, finance interest, lease payments (not car/truck payments) etc.  You can take a deduction for depreciation, too.  Company owned cars are tricky – get with your CPA to determine if this one makes sense for you.
  • Employee – if you drive your own car or truck around a lot during working hours on behalf of your employer, you should ask your employee to reimburse you for your mileage.  A lot of employers will ask you to turn in a mileage log with a request for reimbursement.  They will then pay you some amount per mile up to the IRS limit of 51 cents.  Your employer is not required to pay the IRS standard mileage allowance.  If you turn in your log and get reimbursed, the reimbursement is not taxable to you.  If your employer pays less than the IRS standard mileage rate, you may be eligible to deduct the remainder up to the IRS limit.  So, if your employer reimburses at 30 cents per mile, you can claim the additional 20 cents per mile on your tax return as a potential deduction.  It is a hard deduction to take advantage of though, so do try to have your employer reimburse you fully instead.   Keep in mind that your commute to and from work is almost NEVER deductible.
  • Employee – same as above, but assume your employer reimburses none of your car mileage.   Keep a good mileage log and then claim all business related mileage on your tax return – usually start at Form 2106 and then to Schedule A.  [Note:  If you don’t itemize your deductions, you cannot claim the mileage deduction on your tax return.]  You may be able to deduct other unreimbursed employee expenses – like cell phone, meals with clients, parking (not at your office), a computer and on and on – GET ADVICE from a tax pro or from the IRS Publication ___.
  • Employee – if your employer chooses the “easy way out,” he/she may simply give you a sum of money monthly to “cover” your car expenses.   That money is fully taxable to you and will be embedded in your W-2 wages – or should be.  If that is the case, then you can follow the rules in #4 above.  If the amount that your employer has given you is NOT embedded in your W-2 wages, be sure to note the amount of reimbursement on Form 2106.
  • Employee – what if your employer “gives” you a company car to drive around?  Your employer will probably require you to provide a mileage log.  With a tally of business versus personal miles, your company will assess taxable compensation to you based on the value of the car.  That compensation shows up in your Box 1 wages and usually a sum in Box 14 explaining that it is the car allowance.   You are probably not entitled to a deduction since you are only being taxed on your personal use.  HOWEVER, if your employer does NOT ask for mileage, you may have a large chunk of money included in Box 1 wages as a fully taxable car allowance—should also be shown in Box 14 or at least on your paystub.  Then you can take a look at the suggestions in #4 above to take a deduction for your business-related miles on a taxable benefit.
  • Individual – Charity – if you are a volunteer umpire or church youth group leader, or you volunteer with meals on wheels or a group that transports seniors to doctor appointments – your mileage is deductible.  Keep a log – where you went and why and with whom.  Report on Schedule A under “cash contributions” at 14 cents per mile.
  • Individual – Charity – give away your old car.  Give your car to a charity and they will either auction it off or use it in their mission.  Your deduction is the amount the charity received at auction – not the blue book value.  To get the blue book value, give your car to an organization that will use it in the mission or they can gift it to a needy individual.  Then you get the whole fair market value as a Schedule A deduction.  The charity must provide you with a statement or tax form either way.
  • Individual Tax – Sales Tax – through 2011 – if you purchase a car, you may have a choice between deducting the sales tax OR your state income tax on Schedule A.   This works best in states without income tax, but for the “rest of us” – if you make a major car purchase, sales tax can be a chunk of change.
  • Individual Tax – Ownership Tax –  we all pay license fees to keep tags on our cars.  In some states, part of the fees include personal property tax or ownership tax based on the value of your car.  While license fees are NOT deductible, the personal property taxes are.  This is a federal level deduction on Schedule A.
  • BONUS!  NOT A DEDUCTION – better!   For a variety of hybrid fuel cars, there were tax credits available through 2010.  A tax credit is payment of tax itself…not a deduction.  If you purchased a hybrid car in 2010, do not forget to tell your tax preparer, or look it up yourself to determine if that particular vehicle is eligible for a credit.  Starting in 2011, plug-in hybrids are the New Big Thing, and there are substantial credits available (like up to $7500).  Do a web search for plug-in hybrid tax credits 2011 and you will be rewarded with a lot of articles and lists of currently eligible vehicles.  Why a credit?  Because these cars are expensive and the government is anxious to encourage us to adopt the technology.