I will be starting my own business soon and was wondering if I can deduct any of my vehicle expenses?
Each year I answer hundreds of questions from self-employed individuals but the most common questions are those with reference to deducting vehicle expenses. In answer to your question, yes, you can deduct certain expenses applicable to the use of your vehicle for business purposes. This answers your initial question but the inevitable next question is how much. This part of the question is somewhat more complicated.
There are two methods of calculating the deduction for vehicle expenses. They are the standard mileage method and the actual method.
In this part, the second of this two part article, I will address the actual cost method of calculating deductions for business use of vehicles.
The actual cost method requires that you keep the same mileage records as the standard mileage method. In addition, you are required to keep records to support all expenses actually incurred for the operation of your business vehicle. With the actual method, you will be allowed to deduct depreciation for your vehicle. You can't deduct the payments you make on your vehicles note but the interest is deductible, if you are self-employed. You are allowed a deduction only for the portion of expenses that relate to the business usage of your vehicle.
Which method is best? It depends. You must consider the basis of your vehicle, the total miles driven, the business miles driven and all operating expenses. When preparing the first years return, it is best to calculate using both methods then choose the one that gives the greatest deduction.
The automobile business expense deduction can be a significant benefit to the self-employed person. It is also one of the few deductions that you control the method of calculation. Take full advantage of the tax law and maximize your deduction.
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