How Can the Self-Employed Deduct Fuel on Taxes?
Self-employed individuals may find themselves in their cars more often than they'd like. They shuttle goods, meet with clients and scout locations. Too much car time combined with high fuel prices will make it feel like the car is eating all the profits. Fortunately, Uncle Sam allows fuel costs to be deducted from taxable business income, offering a break for those whose business growth relies on gas.
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Qualified Activities
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You may deduct the cost of fuel used to complete business activities. This includes driving to and from business meetings, deliveries to clients and driving between office locations. You may not deduct fuel costs for driving from your home to your regular office.
Calculating the Deduction
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There are two methods you can use to calculate your deduction. The simplest is the standard mileage rate deduction. In this method, you keep track of the miles you drive for business and multiply that number by the mileage rate -- $0.50 in 2010 -- to calculate the deduction. The second method is the actual expenses method, in which you track all money spent on gas and allocate a portion of it to business use. This method is simplest when your car is solely used for business purposes or when expenses are very high.
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Related Expenses
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In addition to fuel, you may deduct the expense of maintaining and repairing your vehicle, along with parking fees, permits or other car-related costs. If you use the standard mileage rate option, these costs are factored into the per-mile rate. If you use the actual cost method, you'll need to allocate a percentage of car time to business and personal purposes and assign expenses accordingly.
Car Rental and Leasing
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If you rent or hire a car for occasional business use, you can still deduct fuel costs and other expenses. You must use the actual cost method to make your annual deductions. If you lease a car, the opposite is true -- you are only allowed the standard mileage rate deduction for the life of the lease.
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