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Actual Expense Deduction For Business Use Of Your Car

By roger chartier

You can take a deduction for the full cost of the operation of your car if you use it only for your job or business. There are a few limits.

A lot of people use their car for both personal and business, and those people can deduct only the percentage that is used for business.

You have to choose between two methods for deduction.

The Standard Mileage rate

For the Standard Mileage rate go to Read this website for more detailed information about the standard mileage rate.

Those using the standard mileage rate can also deduct any tolls and parking fees connected to the business miles.

The other method is the...

Actual Expense Method.

Those who can qualify for either should do a bit of accounting to see which would be more advantageous.

To get the deduction correctly you have to determine the percentage of cost for use that is for business and use that in determining the deduction.

This list is some of the deductions that you can take

  1. Gas
  2. Oil
  3. Licence
  4. Tires
  5. Registration Fee
  6. Repair
  7. Insurance
  8. Lease Payments or Depreciation
All connected to the percentage of miles driven for business.

Business tolls and parking costs are deducted separately.

If you don't understand Accountable Plans and Nonaccountable Plans look to page 30 and page 33 of Publication 463.

If you have a problem with understanding record keeping look to Chapter 5 of Publication 463

For the depreciation method, you should use the Modified Accelerated Cost Recovery System. It ends up that it's the only method used for any car put into service after 1986.

If in the first year that a car is put to work for you and you have used the standard mileage rate then you decide to change to an actual expense method in the following year before your car is fully depreciated, you are required to use straight line depreciation for the rest of the useful life of the car.

The IRS has set limits on the depreciation amount that you can deduct.

Look to the Travel, Entertainment, Gift and Car expenses page for further information on leased cars and depreciation limits.

Adequate records and sufficient records are required by law for these expenses, to support your deduction statement and to make it a valid statement. Maintain adequate records.

As an employee with deductible employee business expenses that are fully reimbursed under an accounted plan, do not add your reimbursements in your wages statement on your company W2 form. Don't deduct the expenses.

On the other hand, if your boss has a non-accountable plan towards your reimbursements then they are included in your wages.

Your employer will combine the amount of any reimbursement or other expense allowance paid to you under a non-accountable plan with your wages, salary, or other compensation and report the total on your Form W-2.

Your employee business expenses may be deductible as an itemized deduction.

Generally, if you are an employee, to deduct your car expenses including expenses that exceed reimbursement under an accountable plan, you must complete Form 2106 or the Form 2106-EZ.

Look online for any changes to 2012 form 2106EZ itemize your deductions on Form 1040, Schedule A.

There is more information on the 2106 and 2106EZ Forms on page 33 of the publication 463.

There is a 2% of adjusted gross income limit that applies to your employee expenses.

Self-employed people can take deductible car expenses on Form 1040, Schedule C, or Form 1040, Schedule C-EZ or on Form 1040, Schedule F if you are a farmer.