Drive Your Way to a Lower Tax Bill!

By Dominique Molina, CPA

Ever notice how many negative concepts are associated with automobiles: traffic jams, road rage, rising fuel prices, gas-guzzlers, collisions, traffic court? The list goes on and on! Here is some good news about how your automobile can help lower your tax bill.

The Tax Code allows us a tax deduction in an amount equal to either the standard mileage rate or actual expenses for each mile we drive related to business. But have you ever wondered which would help lower your tax bill?

Standard Mileage Rate versus Actual Expenses

With the oil prices rising as fast as I drive on the freeway (I mean – I ALWAYS drive the speed limit officer) have you ever stopped to consider how much it actually costs to drive your vehicle?

The IRS for 2009 provides a standard mileage deduction in the amount of 55 cents per mile driven for business purposes. Sounds great and doesn’t require much documentation, right? Perhaps you’ve even been told by an accountant, just take the standard mileage deduction it’s easier.

Although easy, one downfall to taking the standard mileage rate is that it is the same for everyone. It doesn’t take a math genius to realize that driving a Hummer probably costs slightly more than driving a Honda Civic.

It might surprise you to know how much it actually costs to drive your car. Every year, AAA publishes a vehicle operating cost survey. Costs vary according to how much you drive – but if you’re taking the standard deduction for a car that costs more than 55 cents per mile, you’re losing money every time you turn the key. In my example above, a Hummer costs about 65.4 cents per mile, while the Honda Civic is about 41.7 cents. Are you losing more than just the increase at the pump?

Fortunately, we also have the option of deducting actual expenses for the operation of vehicles related to business – which can help boost your deductions. This includes all expenses related to your vehicle such as fuel, repairs, registration, insurance, even warranties and preventative maintenance such as paint sealant and interior protection! You can even deduct part of the cost of purchasing the vehicle through the magic of depreciation.

You are limited to the portion related to business but it’s not difficult to determine this. First calculate your business use percentage. Divide your total miles driven for business by your total mileage driven for the year. Keep in mind that commuting mileage from your home to your primary place of business is considered personal and does not count. Once you’ve determined your business use percentage, multiply this percentage against your expenses and the result is your tax deduction.

If you want to boost your mileage, make your home your primary place of business – you’ll see your business miles increase since you can now include all business miles from the time you leave your driveway!

It’s not too late if you’ve been taking the standard mileage rate in the past. You can switch from the allowance method to actual expenses, but you can’t go back – so be sure to keep up on your record keeping!

Settling for a “one size fits all” approach can cost you thousands. Be sure your valuable vehicle deductions are not getting guzzled up by taking the easy way out.

Dominique Molina is a licensed CPA and tax strategist. She is an experienced real estate investor and specializes in tax strategies for investors and business owners – helping them keep more of what they earn! She is the director of the American Institute of Certified Tax Coaches with offices in Cincinnati, Ohio and San Diego, California. For more information, please visit www.CertifiedTaxCoach.com.

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