Fortunately, there is nice tax deduction that the IRS provides that can offset some of the cost for using your personal car for business use. It may not cover all costs, but it can go a long way toward helping you out.
Standard Mileage Rate
You can choose the standard mileage rate for deducting your costs. For 2013, that rate is 56.5 cents per mile. That means if you drive 2,880 miles this year for your business, then your deduction amounts to $1,627.20.
Actual Expense Method
Instead of the standard mileage rate, the IRS allows you to opt for the actual expense method. With this option you will deduct the actual costs for operating your vehicle including depreciation, oil changes, repairs and gasoline. Insurance, tolls, fees and car washing costs can be added in as well. Think twice before including that $150 detailing job, though!
Your Choice
The IRS notes that most people choose the standard mileage rate. It is easier to track and it does not require endless receipts. Yet, if you drive extensively, you may not enjoy the full benefit of the actual expense method, forcing you to settle for a lower than expected deduction. Why give the IRS more money than you need to?
Considerations
If you are not sure which method is most beneficial to you, try doing both for one year. Likely, you are recording your standard mileage anyway, so begin to keep those receipts. With each receipt you get, write a note on the back explaining what the receipt is for and tie that in with the applicable business trip. Then, keep your receipts in a safe place for tax time. You also need to maintain record of your receipts in the event that the IRS audits you.
There may come a time when you are driving your car extensively for work. In that case, your business may want to buy a vehicle and allow you to use it. If that decision is made, then the business will enjoy certain advantages hat you currently have including depreciation, actual expenses or mileage. You may need to “sell” your boss on this option, but if successful you may end up driving a newer car than your own vehicle.
See Also — 5 Tax Tips For Small Business Operators
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