Subjecting your own income to taxation is inevitable, but there are compensations in the form of tax deductions which can reduce your burden. Your taxes can be substantially reduced by claiming any of the several types of tax deductions you are eligible for. Of all the expenses that drain our pockets, over the whole year, a large share is taken up by fuel prices which we pay for personal or business related car usage. If you travel around on business visits in your own or leased car, you are eligible for business mileage tax deductions.
Eligibility Conditions For Business Mileage Tax Deductions
Considering that fuel prices are continuously on the rise, forming a sizable part of any individual's expenses, IRS provides tax deductions based on it. However, there are several conditions that should be met, to be able to claim them.
Firstly, owners of transport businesses of any kind, including those engaged in transportation of goods or people (taxis) cannot claim a mileage tax deduction. Secondly, those who have already claimed depreciation or deduction under the 'Modified Accelerated Cost Recovery System (MACRS)' or section 179, cannot deduct mileage expenses. You may claim deductions on the usage of a self-owned or leased car.
You must necessarily use the standard mileage rate deduction method (explained further), in case of a rental car. You may choose to use the standard mileage rate for deductions only if you have used it for the car's first year of usage. Let us now take a look at the ways in which this type of deduction may be claimed.
How to Deduct Business Mileage From Taxes?
You can claim deduction on the business usage of a car, including its maintenance, repair and fuel expenses. There are two primary ways in which one can claim these deductions, which are as following.
Through Expense Calculation
One way of claiming this deduction is the 'Actual Expenses' method. It involves actually calculating your overall car expenses. This includes fuel bills, maintenance charges, repair bills, registration fees, tolls, parking fees, license fees and any other such expenses related to the car. In case of rental cars, you can deduct lease payments.
In this case, you must provide evidence for all these expenses in the form of bills and other documentation. Provided all other conditions are met, you can claim total tax deduction of the car expenses for business use. To use this option, you must keep an eye on the odometer, and meticulously maintain a log of your business travel for the whole year.
Using the Standard Mileage Rate Calculation
Instead of using the actual expense method, you may claim tax deductions using the 2011 IRS mileage rate for business travel, which is 51 cents per mile. You simply multiply your clocked business miles by 51 cents and claim the resultant amount as deductions. To claim deductions by this method too, you need an accurate record of car usage.
So, these were the two ways in which you can claim tax deductions on business use of your vehicle. As discussed previously, it's essential that you maintain a daily log of your car usage in the form of miles clocked by your car. Maintenance of such a log and careful compilation of the repair and fuel bills over the whole year will help you claim the right amount of deductions. Diligently maintaining such a record is beneficial, as it can reduce your tax burden substantially. For detailed information regarding tax deductions based on car usage for business, refer to 'Topic 501' in resources, along with the IRS publication 463 on the IRS website.