How to Compute Your Vehicle
Expenses
If you use your vehicle for business driving, there are two methods that can
be used to compute your vehicle expense deduction:
- the
standard mileage rate is generally easier to use and doesn't require you
to keep as many records; however, it's not available to everyone. It will
generally be the preferred method if you do relatively little business
driving.
- the
actual cost method may result in a larger deduction, particularly with a
relatively expensive car; however, the burden of keeping records for every
penny you spend on the car may cause more trouble than the deduction is
worth.
- if
you lease your car you can use either of these methods, but some special
rules apply.
Ideally, each year you (or your accountant) should compute your deduction
under both the standard mileage rate and the actual cost methods, and compare
the results. Then, use the method that gives you the largest deduction in that
particular year.
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Remember that whichever method you choose, you may have a
taxable gain when you sell
or otherwise dispose of a vehicle used in your business.
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