- Car Deduction and IRS Mileage Allowance - jdurham
Using a car or truck to commute from home to work isn’t normally allowed as a deduction of taxable income. If a personal vehicle is used to conduct work related functions, the expenses may be deductible. This article looks at methods for deducting car and truck expenses for use in business, as well as the needed forms. There are two basics methods that can be used.
- Actual Expense Method
- Standard Mileage Rate
Form 2106 Employee Business Expense and Vehicle Deductions
Any related work expenses that the taxpayer has incurred are listed on IRS Form 2106. Employer reimbursements must be deducted from the expenses. Accurate and thorough recorded keeping of vehicle business mileage is essential. Some of the related business expenses that can be used include:
- vehicle expense
- other transportation expense
- overnight travel expense
- miscellaneous business expense
- meals and entertainment expense
Car Deduction Using the Actual Expense Method
Part II of Form 2106 is the vehicle expense portion for employee vehicle expense. Section C is where the actual expenses are recorded. In most instances an employee’s car that is used for business is also used for personal use. Only the portions of operating costs that can be deducted are those that are used for business.
Loans payments made on a vehicle are not part of the expense equation. However, vehicle depreciation (that is calculated in Section D) can be entered in the expense section C, on line 28. Other car or truck expenses that may be deducted include.
- fuel
- repairs
- insurance
- maintenance
- tires
- depreciation
IRS Standard Mileage Rate Deduction
The taxpayer can elect to use the standard mile rate instead of the actual expense method. It’s advisable to calculate both methods and use the method that has the highest deductible amount. The mileage rate for the 2009 tax year is $.55 per mile. Multiply the actual business miles used times the rate and enter the amount in Section B, line 22.
Transferring Vehicle Expense Deduction to Schedule A
Once the taxpayers decides which method to use, actual expense or standard mileage rate, the amount is entered on line 1 of Form 2106. After the expense amount is entered, reimbursements from the employer must be deducted. An additional 50% is added and the totals are then entered on line 10. The line 10 amount is then transferred to Schedule A of Form 1040 on line 21.
Once the amount of employee expenses, including vehicle costs, is added to line 21 on Schedule A, only a portion of the deduction is allowed. The portion that’s allowed is only the amount over 2% of the employees adjusted gross income (line 38 of Form 1040). Since only a portion of the expense is deductible, the IRS adds the extra 50% on Form 2106.
Source:
irs.gov
Related Articles:
Home Business Federal Income Tax Deduction- Operating a small business or office out of the home may qualify the homeowner for deductions to reduce taxable income for federal and state personal income taxes.
Home Business Tax Deduction Expense Schedule C- Schedule C is the first step for figuring taxable income from a home-based business. Discover what can be deducted from revenue to determine taxable income.
James Clausen - Clausen received a Bachelors Degree in Business Administration in Automotive Management and Marketing at Northwood University, graduating ...
