| You've heard it a hundred times: That shiny new car | | | | all the costs of owning and running vehicle-only the |
| your buddy just bought? It doesn't really cost him | | | | business use of a vehicle. |
| anything. He writes off the car as a tax deduction. | | | | If you don't have exact records about your business |
| Your first thought is usually, "That can't be right." | | | | use, you can sometimes use good sampling. For |
| Your second thought is, 'I got to figure out how to | | | | example, if you keep a good appointment calendar of |
| enjoy that loophole." | | | | your business activities, one popular tax reference |
| But what does the law say? And what are the rules | | | | suggests that you can look at the total business, |
| for writing off vehicles? It turns out that you can | | | | personal and commuting miles driven during one week |
| write off the cost of buying and using a car if you're | | | | each month. Then, you can average this data to get |
| self-employed and use your vehicle in your business. | | | | good weekly estimates of your business, personal, |
| Specifically, you can probably deduct the business | | | | and commuting miles. Finally, you can multiple these |
| portion of your vehicle expenses on your business | | | | weekly estimates by 52 (the number of weeks in a |
| tax return. | | | | year) to get reasonable estimates of your business, |
| But this deduction is trickier than most people realize. | | | | personal and commuting miles. |
| Here's the first big thing that goofs many people up. | | | | But before you go out and buy a new luxury auto, |
| You need substantiation to prove your business use. | | | | you need to know there's another complication. |
| Ideally, in fact, the Internal Revenue Service wants | | | | Congress limits in most cases the amount of |
| you to keep a log of your business miles, your | | | | depreciation or lease rental that you can include in |
| commuting miles, and your personal miles. | | | | your vehicle expense calculations. The rules are a bit |
| With this information, you can then either deduct an | | | | tricky, but essentially, for purposes of vehicle |
| amount equal to the business miles times a standard | | | | depreciation and lease payments, you only get to |
| per-mile rate of roughly $.35 or $.40 a mile (depending | | | | look at the first $17,000 (roughly) of vehicle cost. In |
| on the year)... or you can deduct the percentage of | | | | other words, if you buy a $60,000 vehicle and your |
| your vehicle expenses equal to the percentage that | | | | friend buys a $15,000 vehicle, you may both have |
| your business miles represent. | | | | the same business depreciation expense-even though |
| Note that only your business miles-and not your | | | | your vehicle costs four times what your friend's |
| commuting miles or personal miles are deductible. | | | | does. |
| For example, if your business use equals 5,000 miles, | | | | One other related point: You may have heard about |
| personal use equals 3000, and commuting equals | | | | the sport utility vehicle loophole. This SUV loophole |
| 2000 miles, your total miles for the year equal 10,000. | | | | really does exist. Specially, the luxury auto limits |
| Business miles as a percentage of total miles equal | | | | mentioned above don't apply to sport utility vehicles |
| 50% because 5,000 divided by 10,000 equals .5 or | | | | that weigh more than 6,000 lbs. Note that Congress |
| 50%. | | | | partially closed that loophole in 2004, however, by |
| In this example, you could therefore deduct 50% of | | | | saying that a special, super-accelerated form of |
| your fuel, 50% of your insurance, 50% of your | | | | depreciation called Sec. 179 depreciation couldn't be |
| maintenance and repairs, 50% of the car loan | | | | used to write off all of the cost of an expensive |
| interest, 50% of the depreciation, and so on, as a | | | | SUV in the year the vehicle is purchased. |
| business deduction. This means you can't ever deduct | | | | |