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February 17, 2015

Understanding the Deductions for Business-Related Vehicle Expenses

If you drive a personal car for work you can deduct part of the vehicle expenses on your tax return, and in turn lower your taxes. There are two ways to deduct business related vehicle expenses, the Standard Mileage Method and the Actual Expense Method.

The Standard Mileage Method, simply uses a standard mileage rate for each year, for 2014 this rate is 56 cents per business mile. This method cannot be used if the vehicle is depreciated using Modified Accelerated Cost Recovery System or claiming Section 179 on the vehicle. The standard method also cannot be used on vehicles used for hire or for more than four vehicles used simultaneously.

The Actual Expense Method gives an allowance for depreciation of the vehicle as well as gas, oil, insurance, repairs, and maintenance. The vehicle expenses are taken based on the percentage of miles the car is used for business to arrive at the total deduction. This method generally ends up with a larger deduction than the Standard Mileage Method. To use this method, taxpayers must keep a log for time, place, mileage, business purpose, and total mileage for the year.

Due to the extra time and record keeping the Actual Expense Method takes compared to the Standard Mileage Method, the Standard Mileage Method is much simpler.

If you use the Standard Mileage Method in the first year you can switch to the actual expense method later. However, once you have elected to use the Actual Expense Method you cannot switch back to Standard Mileage Method for that specific car.

Driving from your home to your regular office does not count as business mileage and is not deductible. Travel to and from temporary job sites, visiting clients, and going to business meetings are deductible. Out of town business is also deductible as long as the purpose for the trip is business related and is reasonable.

If you are reimbursed for any of your driving expenses, they are not deductible on your tax return.

As always, please contact your Anders tax professional with any additional questions.

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