Top Tax Deductions for 2009 - Car Expenses

Money Back For Business Use of Automobile Means Bigger Refund

As tax time approaches, it is critical to understand which tax deductions are allowable for each particular individual taxpayer. If a vehicle is used for business, the cost to operate that vehicle is deductible. The standard mileage rate for the cost of operating a vehicle for business purposes as indicated by the IRS in 2009 is fifty-five cents per mile.
For most Americans, vehicle expenses comprise a large part of the monthly and yearly expenses. If prepared properly, the tax savings for vehicle business use can be quite substantial. If a vehicle is used for business purposes, some or all of those expenses may be deducted from the taxes owed for 2009. For qualified deductible vehicle expenses, use a Schedule A for the Form 1040, or use Schedule C if self-employed.

2009 Tax Deduction for Business Use of Auto

If it is necessary to use a personal automobile in order to conduct business, then there may justification for a deduction on 2009 taxes. The entire cost of a vehicle's operation is deductible if the vehicle is used only for business purposes. If a vehicle is used for both business and personal use, only the amount of operation for business use is deductible. There are specific details and limits to this, so it is best to check with a CPA, tax professional, or the IRS website.

Standard Mileage Rate Method

For 2009, the standard mileage rate is fifty-five cents per mile. This standard mileage method is the easiest to calculate and works by multiplying the actual business miles on a vehicle in 2009 by fifty-five cents per mile. This method works best for a car, which is owned and not leased. If this method is used for a leased vehicle, it must be used for the entire lease period. A certain amount of vehicle mileage is not deductible if using a car for hire or using five or more cars at the same time, such as in a fleet of vehicles. There are other restrictions as well so it is best to consult a tax professional to help determine if this is the appropriate method for your situation.

To quote the IRS, To use the standard mileage rate, you must own or lease the car; the car must not be used to transport persons or property for compensation or hire, for example as a taxi; you must not operate five or more cars at the same time, as in a fleet operation; you must not have claimed a depreciation deduction using the Modified Accelerated Cost Recovery System (MACRS) on the car in an earlier year (including any additional first-year depreciation or "bonus depreciation" or any method other than straight-line for its estimated useful life; you must not have claimed a Section 179 deduction or the special depreciation allowance on the car; and you must not have claimed actual expenses after 1997 for a car you leased. You cannot use the standard mileage rate if you are a rural mail carrier who received a "qualified reimbursement".

Actual Expense Method

This method works by determining what portion of total vehicle expenses were used for business only. Start by dividing the amount of business miles on a vehicle driven in 2009 by the total miles driven during the same period. Take that amount and multiply it by the total amount of expenses to actually operate the vehicle in 2009. Include gas, tires, oil, repair costs, licenses, insurance, registration fees, and vehicle depreciation.

The toughest part of this method is figuring the actual depreciation of a vehicle. The IRS has a depreciation table that will help calculate vehicle depreciation. Although not all costs accrued over the life of the vehicle are recoverable in 2009, this method allows some recovery of the cost of a business vehicle spread out over a number of years, depending upon the length of time the vehicle is owned. There is a special Section 179 deduction that allows most or all of the expense of a vehicle to be deducted in the tax year it was purchased. For more information, see IRS Publication 946 or consult a tax professional.

Always Keep Adequate Records

Account book, diary, log or some sort of daily record-keeping journal is required as evidence of deductible vehicle expenses along with receipts, canceled checks, or bills. Exceptions when documentary evidence is not needed are expenses less than seventy-five dollars where a receipt is not readily available, such as a parking meter. If using the deduction for travel, entertainment, or transportation expenses, certain elements of that expense may require some sort of documented proof. See IRS publication 463 for more information.

It is probably best to figure the deduction using both methods and consult a tax professional or CPA to determine which method is best for a particular situation. This information is not intended to be a source of legal advice, and no information in this article should be considered, relied upon as legal, tax, or financial advice on any specific matter. Never act upon general information on legal, tax or financial matters without seeking legal counsel regarding a particular situation.

As always if you have any questions or comments please email me at rondazaragoza@gmail.com. I will try and reply to your question within 24-48 hours of receipt.