Not Your Family Vehicle
Advance Notes: In your photo researching operations, do you use your car for business reasons? ("Car" can mean an automobile, van, pickup, or panel truck.) Say, trips to see clients or customers, or to attend meetings, a
When you use your car for business, if you decide to use the "actual-expense" approach, the list of deductible items includes gas, oil, tires, repairs, license tags, registration fees, insurance, garage rent, lease payments, parking fees, tolls, and depreciation. (Commuting to and from your place of work is not deductible.) The interest portion of car payments is not a deductible car expense if you are an employee, but it is deductible if you are self-employed.
Opting for the actual-expense method in the first year the car is used for business, requires you to stick with that method as long as you have that car. Moreover, there are restrictions on depreciation deductions for cars used less than 50 percent of the time for business driving. Another limitation applies to cars used for both business and personal driving. You have to divide total costs between the two purposes; the cap on your deductions is the percentage of costs attributable to business use.
When you use the standard mileage rate, this method encompasses depreciation, as well as insurance and other car expenses. The standard rate spares you the bother of tracking actual expenses; you only need records of business miles driven for the year. For tax year 2007, the standard rate is .425 cents a mile.
The IRS restricts use of the standard rate. If you don't use the rate in the first year, you are precluded from using it for that car in any year. But if you do use the rate in the first year, there is some leeway. In subsequent years you generally have the choice to use either the rate or actual expenses.
When you claim the mileage allowance, remember to take a separate deduction for parking fees, and bridge,
Figure your deduction both ways (actual expenses or mileage rate) to see which option provides a larger write-off for your particular situation. Usually actual expense is more advantageous than the mileage rate, particularly if your car is a gas-guzzler. But the reverse can be true for folks who have extremely low outlays or scant business mileage.
If the IRS audits your return and questions car expenses, they will not challenge a standard-rate deduction, provided you are able to substantiate the miles driven.
Keep a glove compartment diary where you list each business use, when, how far, and why you went, along with the cost of parking and tolls.
A final thought: I advise my clients to claim all car deductions to which they are legally entitled. In my experience, they should not let the possibility of IRS scrutiny cause them to put the brakes on breaks that can significantly lessen the amount siphoned off for taxes.
Julian Block, a former IRS agent and tax attorney, is the author of "Julian Block's Tax Avoidance Secrets," $33.95. (560 pages; mention you are a PhotoStockNotes subscriber and receive the book for $19.95), 3 Washington Sq, Station 5, Larchmont NY 10538-2032). Julian can be reached at julianblock@yahoo.com.
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