As the tax year ends and you scramble to pull together your year end tax deductions, people often ask us whether they can get a deduction for using their automobile. It's important to understand these rules for both employees and business owners alike as this could mean big bucks in your pocket come tax time.
According to the IRS Topic 510 business use of a car (http://www.irs.gov/taxtopics/tc510.html), you can generally figure the amount of your deductible car expense using one of two methods: the standard mileage rate method or the actual expense method. If you qualify to use both methods, before choosing a method, you may want to figure your deduction both ways to see which gives you a larger deduction. Please refer to Publication 463, Travel, Entertainment, Gift and Car Expenses, for the current standard mileage rate. If you use the standard mileage rate, you can add to your deduction any parking fees and tolls incurred for business purposes.
If you use the standard mileage rate, make sure to keep excellent documentation. You cannot deduct mileage for your normal commute to and from work every day unless you have a home office. For 2011, all business miles you incurred during the year will be calculated at a rate of .51 cents per mile for the 1st half of 2011 and .55 ½ cents for the second half of 2011. For some of you, this can mean thousands of dollars per year if you use your car for business purposes. If your employer reimburses for normal mileage/auto reimbursement, you cannot double dip with the deduction.
Purpose |
Rates 1/1 through 6/30/11 |
Rates 7/1 through 12/31/11 |
Business |
51 |
55.5 |
Medical/Moving |
19 |
23.5 |
Charitable |
14 |
14 |
If you qualify to compare the standard mileage and actual use method, make sure you get all of your receipts together so you can calculate a fair comparison. Actual car expense can potentially include all of the following items. Since gas has been at a fairly high cost during the course of the year, you should really sit down year end to take a look at what method is best for you.
Actual car expenses include:
| Depreciation Licenses | Lease payments | Registration fees |
| Gas | Insurance | Repairs |
| Oil | Garage rent | Tires |
| Tolls | Parking fees |
If you work for yourself, car expenses can be one of the larger deductions come filing time. Don't make a mistake and turn the engine light off. Do your homework and figure out which method drives you to a bigger refund in 2011.
Visit to www.oxygenfinancial.net to request a free consultation with the leading financial experts for people in their 20's, 30's, and 40's in the country.
Written by:
Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder of oXYGen Financial, Inc
Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice and Smart Money Moves to the X and Y Generation.
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