Wednesday, February 21, 2001
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Wednesday, February 21, 2001 |
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Driving towards auto deductions
Business in the fast lane can be expensive, especially if your business requires you to put a lot of mileage on your car. For this reason, the Georgia Society of CPAs recommends that business owners make a concerted effort to keep track of business-related transportation. Qualified transportation expenses are deducted from your business's bottom line and reduce your overall tax bill. The key is to understand the rules and keep good records. When the odometer on your car reflects not only mileage for business-related transportation, but trips to the mall, the gym, and your vacation home, only the business-related miles you drive produce a tax deduction. You must, therefore, track the use of a dual-purpose vehicle and allocate your expenses based on your business and personal use. Business-related transportation includes traveling from one job to another; traveling from one customer or client to another; and running business-related errands such as picking up supplies, going to the post office, or making a bank deposit. If you are an employee with a regular place of business and you are asked to work at a "temporary" business location, the cost of transportation between your home and the temporary location is deductible as well. On the other hand, mileage associated with commuting between your residence and your regular business location is nondeductible, unless your home is your principal place of business. In this case, you generally can deduct the cost of traveling from your home to any business destination. The tax code gives you a choice of two ways to calculate and deduct business vehicle expenses: the standard mileage or the actual expense method. With the actual expense method, you can deduct business-related automobile expenses associated with operating your car for business including oil, gas, tolls, parking, towing, repairs, insurance, auto club memberships, plus an allowance for depreciation. To qualify, you must keep detailed records to substantiate each and every expense. Instead of keeping a record of all your business-related mileage expenses, you can use the IRS standard mileage allowance to determine your deduction for the business use of your car. To claim the standard mileage deduction, which covers all the expenses outlined above, you would total the number of business miles driven over the year and multiply that figure by 32.5 cents, the rate allowed for 2000. (The rate for 2001 is 34.5 cents.) Even if you use the standard mileage method, you still can deduct the business portion of tolls and parking fees. But if you overstay your welcome at a parking meter, don't look for Uncle Sam to pay the fee. Fines for all traffic violations, including parking violations, are not deductible under either method. There is no easy way to determine which method will produce the greater tax benefit for you. Many factors can impact your decision, including the number of miles you drive each year, the type of vehicle you drive, and your willingness to keep detailed records. As with other business expenses, CPAs say good record keeping is the key to maximizing your tax savings. In fact, regardless of the method you choose, the amount of your deduction depends, to a large extent, on how good you are at saving receipts, keeping mileage records, and jotting down your costs throughout the year. The way you report business use of your car depends on whether you are self-employed or an employee. Self-employed taxpayers report transportation expenses on Schedule C, where they are fully deductible. Employees, on the other hand, must complete Form 2106, Employee Business Expenses, to deduct automobile expenses. Employees may claim unreimbursed transportation expenses as miscellaneous itemized deductions which are deductible to the extent that they exceed two percent of adjusted gross income. Although the fine print concerning the auto expense deduction can be tricky and the record keeping cumbersome, you can save valuable tax dollars by claiming qualified expenses. Ideally, each year, you or your CPA should compute your deduction under both methods and compare the results to determine which alternative gives you the largest deduction for that particular year. The GSCPA is the premier professional organization for CPAs in the state of Georgia. With over 10,000 members throughout the state, the purpose of the GSCPA is to promote the study of accountancy and applicable laws, provide continuing professional education, maintain high ethical and work standards, and provide information about accounting issues to the membership and the public. For more information, access our web site at www.gscpa.org. |