Here’s what you need to know to write off your car expenses.
SmartMoney:
People are always wondering whether they can deduct certain items from their taxes - like red wine as a health-related expense (nice try). The most common question: whether they can write off their car as a business expense.
For most, the answer is ‘no’ You generally can’t, for example, deduct the cost of your daily commute to the office. And even if you’re in, say, sales, and often travel in your car for your employer’s business, the deduction usually just isn’t all that great.
But for those of you who are self-employed or small-business owners, this is, indeed, an option. In fact, you’ve got two ways to write off your auto expense - a simple one, and a more complicated method that offers greater rewards. So if you’re the head of your own small organization, read on. I’m about to explain to you yet another perk of being your own boss.
Standard-Mileage-Rate Method
Let me start off with the easier choice. With the standard-mileage-rate method, all you need to do is keep track of your business miles. You then deduct a certain amount - for 2007 it’s 48.5 cents per mile; for 2006 it’s 44.5 cents. This figure is intended to compensate you for the fixed and variable costs of owning - or leasing - and operating the vehicle. You’re probably spending more than that, but a lot of people pick this method anyway since (unlike the alternative) you don’t have to produce a pile of receipts to back up your deduction.
If you select this method, you can claim separate write-offs for parking fees and tolls on your business journeys. You can also separately deduct the business percentage of your vehicle-loan interest and any personal-property taxes on your wheels.
But there are some qualification rules. Continue reading.
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