If you use your vehicle to run a business, you can deduct certain car tax costs from your tax bill. This applies even if you use the vehicle for personal and business purposes.
Car Tax Expense
That power has historically written parts into the tax code that promote business activity. One of the traditional eliminations has always been the costs associated with using the vehicle for business purposes.
The simplest car tax expense situation is one where the vehicle is used entirely for business. For example, if you own a van that is used for a delivery service and nothing is personal, all costs associated with the van can be written off. This is known as an exclusive use situation. However, for many small businesses, the vehicle will be used for both personal and business reasons.
If you use the vehicle for personal and business reasons, you can only deduct the cost of the car associated with business use. Keep in mind that driving to and from work is not considered business mileage, while driving from work to meet clients is considered business mileage.
There are two methods for determining the car tax deductible cost. The first is a simple calculation known as standard mileage deduction. The second is the actual spending method. You can choose which discount gives you the biggest discount unless you rent a car. With a lease, you must use the standard mileage deduction.
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The standard mileage deduction rate is a calculation where you multiply your business' total mileage for the year by the number provided by the IRS. For the first eight months of 2005, the figure given by the IRS was 40.5 cents per mile. During the last four months of 2005, this figure has been raised to 48.5 cents to reflect high gas prices.
The actual expense option is exactly what it sounds like. This is the actual cost associated with using the vehicle for tax purposes for a given tax year. Car tax expenses will include gas, tires, repairs, oil changes, registration fees, licenses, insurance, and so on. In most cases, the actual cost reduction will be greater than the standard mileage reduction.
Regardless of the method you choose, you must document your car tax expenses. This means keeping a mileage book and receipts of anything you want to deduct.