Your Car May Fuel A Few Tax Deductions
Car Expenses Tax Deduction
Californians love their automobiles, especially if those vehicles also can give them a few tax deductions.
"Certain taxes as well as some expenses associated with motor vehicles used in business or charitable situations may be deducted from both federal and California state income taxes," says Bruce Gray, CPA, of San Dimas. "Taxpayers, of course, need to properly itemize these deductions if they want to realize their benefits."
"Unfortunately, the one expense everyone would like to deduct - mileage commuting back and forth to a regular job: usually isn't deductible. But most of us have at least one or two deductions related to our vehicles."
To assist taxpayers in getting as many deductions as possible, the California Society of CPAs (www.calcpa.org) has compiled the following list of vehicle-related deductions. Keep in mind that these are general rules and that there may be exceptions or qualifications based on your circumstances.
Also, these rules are for individuals and for business owners using four motor vehicles or fewer. Fleet rules apply for businesses with more than four vehicles.
For each vehicle you own, deduct the license fee (not the other fees on your annual registration renewal) on your federal, but not your state, income tax.
If you use your vehicle for business purposes (driving from your regular job site to another location for work-related activities), you may deduct either the actual mileage cost (at 37.5 cents per mile) or your actual expenses for vehicle upkeep as related to your work, but not both. (If your company reimburses you for such expenses, however, you cannot deduct them.)
To figure actual expenses for business-related vehicle upkeep, determine the percentage of time you use your vehicle for business purposes and then divide overall upkeep (gas, insurance, maintenance and repairs) costs by that amount. (If you lease a car that you use in business, you can deduct a portion of your lease payments.) For example, if your total upkeep costs for 2004 were $5,000 and you used your vehicle for business purposes a quarter of the time, deduct $1,250.
If you are self-employed or work on a contract basis, you can deduct your mileage from your home or office to your client's site. Alternately, you can deduct your actual upkeep costs related to your business activities (see above).
If you used a vehicle you own for business purposes and chose the mileage method for its first year of operation, you can switch to the actual cost method in later years. But if you used the actual cost method the first year, you cannot switch to the mileage method in later years. (If you lease the vehicle and chose the mileage method its first year, you cannot switch to actual costs in later years.) You can use the standard mileage method for only up to four vehicles that you own.
If you drove your car to a charitable event or used it on behalf of a charity, you can deduct 14 cents per mile, including the miles between your home and the charity event. Alternately, you can deduct that portion of the gas, oil and similar daily upkeep costs related to charitable activities, but you cannot deduct any portion of automobile insurance or regular maintenance costs.
Similarly, you can deduct automobile costs related to medical or moving expenses. The rules are the same as deducting for charitable use of vehicles.
You can deduct business, charity, medical or moving-related parking fees and tolls with either the mileage rate or upkeep deduction.
Regardless of which method you use to determine your deduction, you should keep decent records of your business trips. Your records should include date, mileage and purpose of the trip.