Effective July 1, 2008, the IRS raised the standard business mileage rate to 58.5 cents. With gas prices hitting all-time highs, businesses should evaluate whether this sufficiently reimburses travelers, or whether a switch to the actual expense method of computing vehicle expense deductions makes more sense.
Two methods available:
There are two basic methods that business taxpayers may choose to compute their deduction for the business use of automobiles: the IRS’s standard mileage rate (SMR) and the actual expense method.
Standard mileage rate. The fixed and operating costs of the vehicle are generally calculated by multiplying the number of business miles traveled by the business standard mileage rate. Although a business using the SMR method cannot deduct any of the actual expenses incurred for operating or maintaining the car, the IRS does allow additional deductions for business-related parking costs and tolls, as well as interest paid on vehicle loans and any state or local personal property tax paid on the vehicle.
Actual expense method. Under the actual expense method, taxpayers can deduct the operating and maintenance costs incurred for the car during the current year, which include:
• Gas and oil (whether premium or regular grade);
• License and registration fees;
• Insurance;
• Garage rent;
• Tires;
• Minor and major repairs;
• Maintenance items such as oil changes and tire rotations;
• Interest paid on a car or truck loan; and
• Car washes and detailing
If the business use of the vehicle is less than 100 percent, expenses need to be allocated between business and personal use.
Contact HLBGC for further details, limitations and an evaluation of the most cost effective method for your business.