Q: How should I determine the tax deduction for auto expense while using my personal vehicle in my work as a self-employed contractor?
A: Your expenses of operating and maintaining a car used for business purposes are deductible. You will need to allocate your automobile expenses between business and personal use based on miles driven during the year. Proper recordkeeping is crucial in the event of an IRS challenge. Your deduction can be computed using (1) a standard mileage rate or (2) actual expenses for the portion of car use allocable to the business.
Revised Standard Mileage Rate
With the recent increases in the price of fuel, the IRS is revising the standard mileage rates for computing the deductible costs of operating an automobile for business purposes and for determining the reimbursed amount of these expenses that is deemed substantiated, effective for miles driven on or after July 1, 2011.
Using the optional standard mileage rate for 2010, you would multiply the number of business miles by a rate of 50 cents per mile. The standard mileage rate for miles driven during January through June 2011 is 51 cents per mile. The revised standard mileage rate is 55.5 cents per business mile driven on or after July 1, 2011.
A deduction using the standard mileage rate is in lieu of tracking and deducting the actual amounts spent using your vehicle for business. However, deductions for tolls, parking fees and interest are still available.
Actual Expenses
Instead of using the standard mileage rate, you might apportion the actual expenses of operating and maintaining your car between business and personal to determine the deductible amount. Those expenses would include actual amounts spent for gasoline, oil, repairs, insurance, taxes, licenses, parking, fees, tolls and interest to purchase the car. Your deduction using actual expenses would also include depreciation, subject to limitations.
Travel to Job Location
Daily transportation costs between your home and a regular work location are nondeductible commuting expenses. However, you may be able to deduct costs of going to and from your home and a temporary (not regular) job location. This deduction is allowed if your work fits one of the following descriptions:
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You have one or more regular places of business outside your home, but sometimes travel to temporary work locations in the same trade or business.
You have one or more regular places of business outside your home, but sometimes travel to temporary work locations in the same trade or business. •You sometimes travel to a temporary work location outside the metropolitan area in which you live and normally work.
You sometimes travel to a temporary work location outside the metropolitan area in which you live and normally work. Generally speaking, employment at a work location is temporary if it is realistically expected to last (and does in fact last) for no more than a year.
Count on Your CPA
As you start your adult financial life, it’s a good idea to get to know your local CPA. He or she can help you understand your choices and make the best decisions for your financial future. You may contact me at (409) 892-0233 or (409) 883-5306. My email address is brad@ekc-cpa.com.
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