Good record keeping is
the key to deducting car expenses on your tax return. You need to know how
many total miles you've driven during the year, and how many of those miles
were for business.
If each January 1 you
write down your car's odometer reading, you'll always know the total mileage
for the year. Calculating the number of miles driven for business is not as
easy. If you have a deductible office-in-home, you can begin counting your
business miles when you leave your home and travel to another business location.
If you don't have a home office, the trip to and from home is non-deductible
commuting. To reduce commuting miles, consider opening a business post office
box near your home or buying from a nearby supplier. From home to that stop
will still be commuting, but business mileage from there will be deductible.
An auto log or notebook
is the best way to record the number of deductible miles you drive each year.
However, if you're one of the many who find it hard to keep an ongoing log,
try one of these methods:
- In your appointment
book note the number of business miles you drive each day.
- If you travel the same
route regularly, measure the distance once and count the number of times
you make the trip.
- For a vehicle that's
used primarily for business, keep track of the personal, rather than business,
miles driven.
- If your business driving
is similar throughout the year, keep detailed records for one month of each
quarter or one week of each month and project your annual business mileage
from those figures.
Your car expenses can
be deducted using whichever of the two available methods is more beneficial.
In the actual expense method, all car expenses are added together and multiplied
by the business percentage of car use. Using the mileage rate method, the
number of business miles is multiplied by 31.5¢ a mile (32.5¢ beginning 1/1/98).
Prior to 1998 returns, this method cannot be used for leased cars.
The record keeping for
car use may seem tedious but, with a good system, the resulting deduction
will make your efforts worthwhile.
(Jan Zobel, EA is a San
Francisco tax professional. This is an excerpt from the recently updated edition
of her book Minding Her Own Business: the Self-Employed Woman's Guide to Taxes
and Recordkeeping (available for $16.95 at bookstores or from the publisher,
EastHill Press at (800) 490-4829).)
