bake - February 2013 - 14

tax tips

Best Auto Deduction
It would make things a lot easier if one rule of thumb existed

Actual Expense Method

for choosing which method gave you the best tax deduction

If you’re using the actual expense method you can deduct

on your auto expenses: a standard mileage deduction or actual

all the expenses of operating the vehicle. That includes gas,

expenses. Unfortunately, there is no such rule. Most tax prepa-

repairs, insurance, lease payments, depreciation, etc. But

ration software will automatically select the best method if you

you’ll have to maintain records and keep the receipts of all the

input all the information correctly, but that selection is based

expenses. If you’re audited, the IRS can disallow the expenses.

upon the information you provide at that time. It can’t know

In the case of an audit, the IRS will ask for your car logs,

what you’re going to do next year.

expense documentation, etc., for all business vehicles. Agents
know most taxpayers are lax in this area and most of the
time an agent is almost guaranteed to disallow some deduc-

Standard Mileage Method

tions. You can only deduct the portion of the expenses

The 55.5¢ per mile for 2012 includes most of the cost

incurred for business use. For example, you drive

of operating the car, depreciation, repairs, gas, oil,

your SUV 10,000 miles during the year. Only

etc. In addition, you can deduct tolls, parking
expenses (but fees to park your car at your
place of work are nondeductible commuting
expenses). If you’re an employee, you cannot
deduct any interest paid on a car loan.
However, if you are self-employed and use

56.5¢
per mile is the new
IRS standard mileage
rate for 2013.

your car in that business, you can deduct that
part of the interest that reﬂects the business
use of the car. For example, based on the miles
driven during the year, you use your car for your sole

6,000 of those miles were for business. You can
only deduct 60% of the expenses.
Picking the Best Method
Estimate your total business miles during
the year, say 6,000. In most cases even rough
numbers will be sufficient. The numbers often
clearly tip one way or the other. Then multiply by the

IRS standard mileage rate. Use 55.5¢ for 2012. The deduc-

proprietorship 70% of the time. You can deduct 70% of the

tion would be $3,330. Next, ﬁgure your actual costs by adding

interest for the year on your Schedule C. If you itemize, you

your depreciation or lease payments, insurance and repairs.

can deduct personal property taxes on Schedule A of your

If you qualify for bonus depreciation, spread the ﬁrst-year

Form 1040, whether or not you use the car for business. If

amount over several years to make comparisons more realistic.

you do business as a sole proprietorship, and use your car in

Assume that totals $5,500. Multiply by your business usage

your business, you can deduct the business part of personal

percentage. Assume 80% here. That’s $4,400, before adding

property taxes on Schedule C and the remaining portion on

in fuel costs. Clearly, the actual cost method will provide the

Schedule A.

greater deduction.

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bake - February 2013

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