What is needed to take a tax deduction for using your auto in your business?

There are two methods that you can use to calculate the tax deductible amount.

  1. Standard Mileage Rate
  2. Actual Expenses

Standard Mileage Rate  Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56.5 cents per mile for business miles driven.
  • 24 cents per mile driven for medical or moving purposes.
  • 14 cents per mile driven in service of charitable organizations.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

Actual Expenses  You cannot deduct amounts that you approximate or estimate.  You must have a record of the actual amount of each expense. Receipts, canceled checks, entries on your bank statement will all be sufficient to prove the amount of expense.  You also need to provide the business destination and purpose.

Business and personal use.  If you use your car for both business and personal purposes, you must divide your expenses between business and personal use. You can divide your expense based on the miles driven for each purpose.

Auto Mileage Log Book   Keeping a mileage log book of your business miles and then comparing your business miles to all other miles driven will give you the business use percentage for the vehicle.  The IRS allows you to keep an adequate record for parts of a tax year and use that record to prove the amount of business or investment use for the entire year. You must demonstrate by other evidence that the periods for which an adequate record is kept are representative of the use throughout the tax year.

 Example.

You use your car to visit the offices of clients, meet with suppliers and other subcontractors, and pick up and deliver items to clients. There is no other business use of the car, but you and your family use the car for personal purposes. You keep adequate records during the first week of each month that show that 75% of the use of the car is for business. Invoices and bills show that your business use continues at the same rate during the later weeks of each month. Your weekly records are representative of the use of the car each month and are sufficient evidence to support the percentage of business use for the year.

Smartphone Mileage App  There are some really cool apps available for your smart phone that will use the built in GPS feature to automatically calculate your miles driven for a particular trip.

  • Use the iPhone GPS to accurately track miles traveled.
  • Create an acceptable IRS mileage log
  • Email the log file to yourself so you can add to a spreadsheet
  • Enter purpose and destination

For those of you currently using Xero Beautiful accounting software, once you know your business use percentage, you can setup rules in Xero to automatically code the personal use portion of expenses to owner’s draw and the business use percentage to automobile expense.  To learn more click here.

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