Mileage Tax Deduction Vs. Reimbursement for Automobile Expenses
The Federal government allows for two types of tax deductions on the business use of a vehicle. You can deduct a specific amount per business mile driven with your vehicle, or you can deduct a portion of the maintenance and upkeep expenses. The type of deduction you use is your choice, but there are several rules and regulations that must be followed. When in doubt, be sure to consult with a professional accountant or tax adviser.
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Mileage Deduction Overview
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Businesses who use a car, pickup truck or panel van for business purposes, are allowed to deduct a specific amount of money per mile driven each year. If you use one vehicle for both personal and business purposes, you must track the business miles used and claim only those as a tax deduction. For the 2010 tax year, businesses can deduct 50 cents per mile for business miles driven.
Mileage Deduction Restrictions
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According to the IRS, there are several qualifications to meet in order to take a mileage tax deduction for business use of a vehicle. You cannot take the standard mileage deduction if you use your vehicle to transport people for compensation, for example, running a paid taxi service. You can't operate five or more vehicles simultaneously and you cannot have previously claimed a depreciation deduction on the vehicle. For additional restrictions on taking a mileage tax deduction, refer to IRS publication 463.
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Automobile Expenses Overview
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The actual expense method of tax deduction allows you to deduct a portion of the maintenance and upkeep of your vehicle instead of deducting based on miles driven. For the expense method of tax deduction, most fees related to the operation of the vehicle can be included. Gasoline, licensing and registration, tires, oil changes, insurance, repairs and depreciation.
Automobile Expenses Restrictions
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To use the expense tax deduction for a vehicle that is used for both personal and business purposes, you must track both mileage and all expenses. Tracking the mileage driven for each purpose lets you calculate the percentage of use for the vehicle. If the vehicle is driven 25 percent of the time for business purposes for example, then you may be able to deduct 25 percent of the expenses. You must keep all records to substantiate deduction claims.
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References
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