If you use your car for business, you can calculate your tax deduction two ways:  (1) using the IRS standard mileage allowance rates or (2) a percentage of your actual automobile expenses.  The standard mileage allowance rates:

Jan - Dec 2010   50 cents
Jan - June 2011  51 cents
                                                           July - Dec 2011           55.5 cents
Jan - Dec 2012  55.5 cents

                            Calculating your tax deduction using the standard mileage allowance rates is very simple.  Multiply your number of business-related miles by the rate shown above, then add your parking costs and bridge tolls.

Or, you can keep track of your actual expenses, including gas, repairs, insurance, and registration.  To that total, add depreciation, and then multiply the whole thing by your percentage of business use.  Percentage of business use is calculated by dividing your business miles by your total miles for the year. (Example:  If you drive 12,000 miles and 6,000 of those miles are for business, your business percentage is 50%.) Depreciation amounts depend on the cost of the vehicle, the type of vehicle, the date first placed in service, and whether the vehicle is used more or less than 50% for business.

You can use whichever of these two methods gives you the larger tax deduction.  However, if you use the mileage allowance rates for the first year, you cannot claim depreciation in the following years.

In either case, you can also deduct the business percentage of the interest you pay on a car loan.

There are special rules for businesses which
  • Rent out their vehicles
  • Have more than 5 vehicles,
  • Have modified vehicles so that they are no longer passenger vehicles, such as by removing seats or adding shelving to vans.

There are additional special rules, so before you commit a significant amount of money to buying or leasing a car for your business, or if you have questions about your business tax deduction for using your car, you need to consult an experienced CPA. 

Bess Kane, CPA
bess@besskanecpa.com
April, 2012
Higher Mileage Allowance Rates!

IRS Standard Mileage Allowance or Actual Expenses:
Which Gives Me the Larger Tax Deduction?


Tax Questions?
Schedule a consultation
bess@besskanecpa.com
(650) 572-8877
Burlingame - San Mateo - Foster City CPA Since '88
Tax Questions?
Free Consultation
By Phone or Email
bess@besskanecpa.com
(650) 572-8877
Don't miss
important tax news and
due date reminders!
or
(We won't share)
Answers to many of your tax questions can be found here
If you have a tax question that you think other people would be interested in, send it to me.  If I use it in my Tax News Blog or on my General Tax Info Page,I'll send you a Starbucks card!