Vehicles

Charles E. Schneider CPA, Ltd.
Your Source For Tax, Accounting & Financial Consulting

Vehicle Tips		Save Taxes With Your Car

Back		Strategy #1: Use Optimum Method of Figuring Auto Expenses
Home Page		The IRS allows you to either figure out your actual costs of owning and maintaining your car and deduct the business percentage of total costs or, you can multiply your total business miles by a maximum standard mileage rate (See Quick Tax Facts for recent mileage rates). Either way, at a minimum, you need to keep a written record of business miles to avoid having your mileage deduction reduced or eliminated should you be audited. If you use actual expenses, keep your receipts for gas, oil, maintenance, repairs, insurance, licenses, etc.

		Strategy #2: Increase Your Business Miles
		It's important to understand what type of auto travel does and does not count as business usage. Commuting does not count as business usage. Simply stated, commuting is your first trip of the day from your home to your first business destination and your last trip of the day from a place of business to your home. Travel between two places of business qualifies as business mileage. A good strategy is to make a stop for business very close to your home. For example, if your first stop in the morning is to the post office, or business supply store, or a customer or vendor, your commuting mileage ends when your reach this first stop.

		Strategy #3: Big SUV's Avoid Depreciation Limits on Autos
		If you use the actual expense method of calculating your auto deductions, one of your expenses is depreciation of your car (unless it's a leased auto). In its infinite wisdom, the IRS has limited the amount of depreciation you can deduct in each year of your car's life. The following limits assume that your car is 100% business use. If it's less than 100%, you have to refigure the limits by multiplying them by your actual business usage percent. Year 1: $3,060 Year 2: $4,900 Year 3: $2,950 Year 4 & beyond: $1,775. With these limits, it will take 9 years to fully depreciate a $20,000 car. Also, these annual limits also prevent your using the first year write-off (Section 179) on passenger vehicles. (See Tax Facts for an explanation of Section 179 first-year write-off) Here's one way around this annoyance if you are inclined to drive big metal. A passenger vehicle with an enclosed body built on a truck chassis is not a passenger auto when it has gross vehicle weight (the manufacturer's maximum weight rating when loaded) above 6,000 pounds. Popular vehicles which qualify are Chevrolet Suburbans, Toyota Land Cruisers, Hummers and others. If you buy one of these, be sure to get something in writing from the dealer to document the weight rating and keep it with your tax records. The full cost of these vehicles can be written off over 6 years and the first-year Section 179 write-off is also available. Strategy #4: Lease When Appropriate Leased cars are not subject to depreciation limitations (actual expense method). You can deduct your full lease payment multiplied by your business usage percentage. The IRS makes you add back a small amount to your taxable income to attempt to equalize leasing and owning, but it actually is insignificant. Leased cars can now also use the same IRS standard mileage rates. The decision to lease or buy a business vehicle is complicated, under the right circumstances, leasing can be very advantageous. Strategy #5: Qualify for a Home Office: If you meet the qualifications for a home office, all your travel to business destinations will count as business mileage. You will not have any personal commuting mileage. Strategy #6: Buy a Car Near the End of the Year: If you're in the market for a new car, and you sign the purchase documents before the end of the year, you can get a full year's depreciation deduction even though you only own the car a day or two during the year. For the few days you own it, drive it only for qualified business mileage to keep the business mileage as close to 100% as possible. This can be an extra bonus if the car meets the over 6,000 lbs. test. (See Strategy #4) Be careful in figuring depreciation -it's tricky and there are lots of tax rules which can come into play.









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