Claiming the standard mileage rate for an automobile on your taxes takes a little record keeping. Some taxpayers hope to avoid that hassle by claiming actual expenses, instead. Truth be told, even more record keeping is necessary with the actual expense method, and you must keep mileage records either way. These records will not be filed with your taxes, but must be available for review in the case of an audit.
If you use your vehicle for obtaining inventory or supplies for your business, you may deduct the business percentage of your automobile expenses. The first step is to record your mileage. Make a habit of writing down the odometer reading on January 1st each year. You may use a spreadsheet (like the PDF example shown here) or something as simple as a pocket calendar you keep in your glove box. Whatever the method, make sure to write it down. Record your starting mileage, ending mileage, where you went, and the purpose of your trip. Jot down your mileage on a scrap of paper if you have to. When you return home, you can fill in the remaining information on your spreadsheet. Total how many miles you drove for business only ─ round trip. The remaining miles used on your vehicle this year are either personal or commuting. Vehicles are considered listed property. Therefore, you must keep records denoting business use.
If your office is in your home, you will not have any commuting mileage. If, however, you work in an office on Main Street, instead of your home, the number of miles between your house, that location, and back again are your commuting miles. Write the number of business, personal, and commuting miles down in the appropriate blanks on Part IV of your Schedule C. You figure your total mileage for the year by subtracting your odometer reading on January 1st, from the odometer reading at the end of the year.
You may either claim the Standard Mileage Rate (SMR) or Actual Expenses, not both in the same year.
Standard Mileage Rate
Taking the standard mileage rate means you are able to deduct a certain amount for each business mile driven in a particular year (48.5 cents in 2007). You multiply the number of business miles driven by 48.5 cents per mile in order to figure your standard mileage deduction. This amount is figured in Part IV of your Schedule C, then deducted in Part II, line 9 of the same form. There are spaces to account for commuting and personal miles in Part IV, Schedule C, but those miles are not deductible.
You may also deduct the business percentage of parking fees and tolls, and the business percentage of state and local personal property taxes on the vehicle, in addition to the standard mileage rate. If you itemize your household deductions instead of taking the standard deduction, you may claim the remainder of your state and local personal property taxes on the vehicle on your Schedule A.
Example:
Dawn drove her car a total of 4530 miles this year. She drove her car 453 business miles this year. She multiplies that number by 48.5 cents (453 x 48.5 cents = $219.70). If she does not have any parking fees or personal property taxes to report on her car, she can simply carry the $219.70 to line 9 of her Schedule C.
If she does have parking and state and local personal property taxes on her car, Dawn will figure the business percentage she used her car by dividing the business miles by the total miles. (453 ÷ 4530 = 10%) Now, she will total her parking and state and local personal property taxes on her car, separately.
If she paid out a total of $150 in parking fees, she will figure 10% of that by multiplying 150 x 10%. Dawn will be able to deduct $15 in addition to the $219.70 for the standard mileage rate. She will then enter $234.70 on line 9, Schedule C.
If Dawn had a total of $200 in state and local personal property taxes for the vehicle, she will find her business percentage (200 x 10%). She may also deduct $20 on line 23 of her Schedule C.
If you want to use the standard mileage rate on a vehicle, you must choose it in the first year the automobile is available for use in your business. Then, in later years, you may choose to use either the standard mileage rate or actual expenses. If you switch from the SMR to actual expenses and want to deduct depreciation, however, you must use straight-line depreciation, as opposed to an accelerated method, estimating the remaining useful life of the car.
When the SMR is NOT allowed:
You may not deduct mileage on a car for hire (taxi).
You use five or more cars in your business at the same time.
You claimed an accelerated depreciation method in previous years on the same car.
You claimed a Section 179 deduction on the car.
You claimed actual expenses on a car you leased after 1997.
You are a rural mail carrier who received a qualified reimbursement
You claimed actual expenses on the same vehicle in the first year you used the automobile in your business.
Beware! When you sell the vehicle or switch to actual expenses for depreciation purposes, you will have reduce your basis by a certain amount (17 cents per mile deducted in years 2005 and 2006).
This and other information may be found in the book listed below.
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