I have a car used entirely for business. What tax deductions do I qualify for?

I have two cars. One is used entirely for business (other is personal). Can I depreciate the business car at the value that I bought it for? Do I deduct the monthly payments? Write off the interest? Deduct gas, car wash, new tires, etc? Or just write off the milage?

Thanks!

For business use vehicle expenses, you can use regular method (means you use actual expenses!) or standard mileage rate (48.5 cents-2007 for business miles driven). The value that you bought the vehicle for is called basis in tax term.

1. If you use actual car expenses you are able to deduct actual cost of gas, oil, maintenance, servicing, repairs, tires, garage rent, washing and polishing cost, insurance, licenses(registration and tags), and finally depreciation (plus Section 179 deduction, if applicable to you ). Fines and legal fees for parking or moving violations of traffic laws are NOT deductible.

Property Tax paid on the business use vehicle-Schedule A
Parking and tolls paid for business purpose -Form 2106. For above 2 deductions usually your tax software will guide you through.

2. If you use the standard mileage rate, you deduct a flat rate per mile! You can't deduct any of the actual expenses, but loan interest payment. You can't depreciate the vehicle.

3. Section 179 deduction: You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction. You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions.
http://www.cclib.lib.pa.us/irs/taxmap/pu...

4. Interest of the loan payment for business use car is deductible under any method, but not the payment! You recover your cost through depreciation.

5. A logbook kept in the vehicle showing the date, business purpose, destination and mileage of each deductible trip provides excellent evidendce in case of audit. If you have one yet, it is ok to recreate it using common sense an fair & honest judgement.

6. Finally, this is very important- REMEMBER! if you use a regular method and take depreciation (MACRS method) in the first year a vehcile is placed in service, you lose the option of ever using the standard mileage rate to compute your transportation expense for that vehicle. In order to retain the option of using either regular method or standard mileage method, you should use the standard mileage rate in the first year of business use.

if in a subsequent year, you wish to use the regular method of computing vehicle expenses, a set rate per mile for past mileage is used to reduce the remaining basis (the value you paid) eligible for depreciation. (Please check Publication 463; pages 14-16, very helpful!)

http://www.irs.gov/pub/irs-pdf/p463.pdf

Is this the first year you are using it for business? Then you can choose to use actual expenses or the standard mileage rate.

If you use TurboTax (and I guess some others), it will ask you for the detailed information on expenses, and the mileage. Then it will use whichever yields the larger deduction. Mileage is the easiest, and is a LOT less of a record keeping headache in the event of an audit. Usually the difference (for me) is minimal enough that I usually choose the mileage approach.

Good Luck!

Are you self-employed? If so, deduct your vehicle expenses on Schedule C. You can deduct actual expenses (gas, repairs, insurance, cleaning etc) or you can take mileage of 48.5 cents per mile. Under either method, you can also deduct parking, tolls, and finance charges on the purchase of your vehicle.

Once you start to take actual expenses, you must continue to take actual expenses. Mileage is often a better method if you are going to keep your vehicle for some time.

If you are an employee, deduct your vehicle expenses on Form 2106, then transfer your deduction to Schedule A as a miscellaneous deduction subject to 2% of your AGI. You cannot deduct the commute to work, only miles driven for your job that were unreimbursed. You cannot deduct finance charges. You can again select actual expenses (and continue to do this in subsequent years) or mileage.