Valuable Tax Deductions for your Vehicle You Can't Afford to
Miss
Is your business missing out on valuable tax deductions you can
take for the use of your personal vehicle for business
purposes?If you haven't done so already, you should definitely
beat a path to the door of your local office supply store and
pick up a notebook for logging the mileage you drive to conduct
business--and be sure to log the miles you drove to buy it.
Not taking the trouble to do this is like letting your pricey
gasoline flow onto the pavement instead of into your tank!
Even if you work at home most of the time, miles you've driven
to purchase office supplies, buy stamps or mail packages, and
other errands for your business can translate into big tax
deductions. With fuel costs soaring, you are literally throwing
money down the drain if you are not keeping track of this
mileage and taking the deductions for it to which you're
entitled as a business owner. And the first entry you need to
make is the beginning mileage on the odometer as of January.
You'll also want to make sure that you keep track of all your
automobile expenses associated with that personal vehicle that
you're using for business.(See below.)
The dramatic surge in fuel costs has not been lost on the IRS.
Of course, gasoline prices began to edge up shortly after the
beginning of the war in Iraq; but the devastation wrought by
Hurricane Katrina prompted the IRS to offer a valuable
money-saving solution for business owners. (If you live outside
the U.S.A. you should check your tax authority's website for
similar provisions.)
Last year,for 2005, the IRS increased the standard mileage rate
for the use of a vehicle (car, van, or truck) by 3 cents a mile,
to 40.5 cents a mile for all business miles driven. However, in
the wake of Katrina, that rate was increased further to 48.5
cents a mile for the business miles driven in the months of
September, October, November, and December, 2005.
This increased mileage rate ended with the end of 2005. The new
mileage rate for 2006, effective January 1, is now 44.5 cents
per business mile driven. You can maximize this deduction if
you're careful to consolidate business and personal errands. For
example, I wait until I need to go to the post office to ship a
package for my business to stop to at the drug store and
supermarket right next door to pick up groceries. What would
have been "dead" mileage becomes a deductible business trip, as
long as you've logged your business purpose in your mileage
logbook.
In addition, for both 2005 and 2006, the IRS also encouraged
Katrina-related charitable relief activities by granting higher
rates for miles deductible and miles reimbursable driven for
such activities.
Of course, the use of these mileage allowances can be rather
complicated. For example, you cannot take additional deductions
for business use of an automobile to which you have already
applied the Modified Accelerated Cost Recovery System (MACRS),
after claiming a Section 179 deduction for that vehicle that
your business purchased directly.
And if you're using a personal vehicle for your business, don't
forget to calculate the percentage of total miles for the year
that you travel for business purposes. At the end of 2006,
you'll note the year-end odometer reading in your mileage
logbook and subtract from it the odometer reading that you
recorded this month. Then you'll add up all miles driven for
your business that you have recorded and divide it by that total
mileage to calculate the percentage of total miles you used for
your business. If it turns out that 30% of your total mileage on
that personal vehicle was for business purposes, you can deduct
30% of *all* your expenses for maintaining that vehicle: not
only fuel, but all trips to the garage for routine maintenance
or special repairs as part of your business expenses for the
year.
The devil is in the details, as always, of course. You will want
to consult your tax accountant on how best to apply the rules to
your situation. If you prepare your tax returns yourself, you
can get the details directly from the IRS website:
http://www.irs.gov/pub/irs-drop/rp-04-64.pdf. Examine the fine
print closely: You'll find that there are limits on what
percentage of business use can be claimed for a personal
vehicle, no matter what your actual numbers might be; so if your
actual business mileage is greater than 75 per cent of your
total mileage, you might be better off purchasing a separate
vehicle dedicated to business use. If you've taken the care to
structure your business correctly--using a corporation, limited
liability company, or other stand alone entity--you and your
business will benefit from even greater deductions.
(C) Copyright 2006 Azur Pacific Associates. All formats and
media, known and unknown. All Rights Reserved.