“C” is for cars which can have a wide variety of tax implications. If you commute with your used car to your W-2 job there isn’t a lot of tax implications, but for people who use their vehicle as part of a small business or self-employment, the tax implications are important.
The tax basics of cars are deducting the auto tabs each year and claiming mileage for volunteering efforts. If the car is used for business, it gets more complicated. You have the option of claiming either the standard mileage or the actual expenses for the vehicle. With either method you choose, make sure to keep track of your miles driven. The standard mileage is just that – a standard amount multiplied by the business miles driven. For 2013 the standard mileage rate is 56.5 cents per mile. The standard mileage rate is adjusted every six months by the IRS based on inflation and the price of gas.
Standard mileage is the easier method. You don’t need to keep track of receipts, but you do need to keep careful track of the miles driven for business and personal use. I would recommend writing down the odometer reading at the beginning of the year, and then keeping a log of the business miles driven. Keep a pad of paper in the car and write down the date and the miles driven when you are driving for business reasons. If you get pulled for an audit, the IRS is definitely going to look at your business miles. If you don’t have good records it’s going turn your audit into a big hassle.
The actual expense is the other method for business expenses of vehicles. Actual expenses means keeping the receipts for the gas, repairs, oil changes, etc. You add up the expenses at the end of the year and multiply by the percentage of business miles driven. You still need to have good records of the business and personal miles. Actual expenses are more work, but in some situations it can be significantly more than the standard mileage. If you have an expensive car and drive a small number of miles, actual expenses will probably result in a higher tax deduction. If you drive an old car and a ton of miles, then you should probably stick to the standard mileage.
Taxes A to Z – still randomly meandering through tax topics, but at least for 26 posts in an alphabetical order.