Let's look at what constitutes a deduction for business miles.
If you use your car in your job or business and it is used only for that purpose, you may deduct the total operation of the vehicle. However, if you use your car for both personal and business miles, you may deduct only the cost of its business use.
There are two ways an employer can reimburse for business expenses: the Accountable Plan and the Non-Accountable Plan.
The Accountable Plan is where you submit receipts or mileage to your employer and are reimbursed for these expenses. The reimbursement is not added to your W-2 income; therefore, these expenses cannot be deducted.
However, if you are reimbursed for a portion of the actual expenses, or less than the Internal Revenue Service mileage rate, you may deduct the difference. The amount of the actual expenses or mileage is listed on Form 2106 with the amount of reimbursement recorded on that form. The difference is what is deductible.
In a Non-Accountable Plan, the employer reimburses you for the expenses, and the reimbursement is included in your wages. This type of plan allows you to deduct your business expenses.
Whether you use mileage or actual expenses in figuring your taxes, record-keeping is critical.
If you choose the standard mileage rate method, you must use this method the first year the car is available to use for business purposes. Then, in later years, you can choose to use the standard mileage rate or actual expenses.
If you use actual expenses, you must continue to use actual expenses each year. If you use the standard mileage rate for a vehicle you lease, you must use the standard mileage method for the entire lease period, including renewals.
The standard mileage rate for 2012 is 55 cents per mile for business use. You must keep a log of the miles driven for business purposes. With this method, you can still deduct parking fees and tolls incurred for business purposes. These are taken as a separate deduction from the mileage.
Mileage to commute to your job is not a deductible expense. However, if you use your vehicle to go to another site or to run an errand for the business, that mileage is deductible. If you stop to pick up supplies on the way to your business, the first stop counts as the commute and the other miles can be deducted. If you work a second job and leave one job to go to the next, the additional miles to the second job can be deducted.
To use the actual expense method, you must determine what it actually costs to operate the car for business purposes. Actual expenses include, gas, oil, repairs, tires, insurance, registration fees, licenses and depreciation. If the vehicle is leased, you may deduct lease payments, but if the vehicle is not leased, you may not deduct the payments.
These expenses must be attributable to the portion of the total business miles driven. In other words, if you use the vehicle for 60 percent business and 40 percent personal, only 60 percent of the total costs can be deducted.
Parking fees and tolls are 100 percent deductible and are recorded as a separate expense.
A detailed list of qualified business deductions can be found on the IRS website. Visit www.irs.gov and type Pub463 in the search engine.
Tracy Bunner is an enrolled agent and tax preparer with an office in Harrisville. She can be reached at 801-686-1995 or at firstname.lastname@example.org.