5. How can I take an expense for the business use of my vehicle?

A taxpayer who uses their car in their work or business has a choice on how these vehicle expenses may be deducted. First, the standard mileage rate may be used. For tax year 2008 the rate was $.505 for 1/1 through 6/30 and $.585 from 7/1 through 12/31 per business mile. For the year 2009 the standard mileage rate is $.550 per business mile driven. Alternatively, the actual expenses for running the vehicle may be deducted. Depreciation expense is part of this actual expense total.

If you want to use the standard mileage rate, you have to use it from the time you started using your car in business. This is because depreciation starts off high and then tapers off. The IRS doesn’t allow you to take depreciation in the high years and then switch to the standard mileage rate when depreciation gets low.

In order to determine which method will generate higher deductions for you, we recommend that, in the first year of business use, you keep records of all costs of operating the vehicle including gas, oil, tires, insurance, repairs, car washes, etc. When we prepare your return, we will assist you in selecting the expense method that is best in your situation. Regardless of which method you choose to use, you must keep track of both the business miles driven in the year and the total miles driven on the vehicle in the year for all purposes. When you sell a vehicle that has been used for business, you may be subject to income tax on all or part of any gain from the sale.

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