Mike Parker for Demand Media writes: You might need a car to drive the kids to school or commute to work, but
if you use your car only for personal use, you can't take a tax
deduction for any expenses associated with operating it. Business use of
your car is a different story. You can usually write off amounts
associated with the business use of your vehicle, regardless of whether
you own or lease the car.
Business Use of Car
Only the portion of your leased vehicle that you use for business
purposes is tax-deductible. The Internal Revenue Service does not
consider commuting to and from work to be business use of your car, but
it does include using your car to travel between two business
destinations, one of which can be your regular place of business,
according to the Small Business Administration. If you use your leased
vehicle 100 percent for business purposes, you can write off 100 percent
of your expenses. If you use your leased car for both business and
personal use, you can deduct only the percentage of expenses that
corresponds to your business usage.
Business vs. Personal
One simple method of determining the percentage of your business
use of your leased car is to keep a mileage log. The IRS doesn't specify
any particular type of record, as long as it is accurate and
understandable should you have to document your expenses in case of an
audit. Add up your total business miles, then divide that number by the
total miles driven for the year to determine the percentage of business
usage. Multiple your total expenses by the business use percentage to
determine the amount of your deductible expenses.
Employee Business Expenses
If you want to take a write-off for operating your leased vehicle
for business purposes as an employee, you'll have to itemize your
deductions. Add your business use of car expenses to your other
unreimbursed employee business expenses and report the total amount on
Line 21 of Schedule A, Form 1040. Unreimbursed employee business
expenses, including business use of car, are subject to the IRS' 2
percent rule. You can deduct only the amount of those expenses that
exceeds 2 percent of your adjusted gross income.
Self-Employed Business Use
If you used your leased car as part of a business you own, you
should report your expenses on Schedule C, Form 1040. All of your
qualifying business car expenses are deductible, regardless of whether
you itemize your deductions or claim the standard deduction.
Actual Expenses vs. Standard Mileage Rate
You can choose between deducting your actual expenses, which
include your lease payments, auto insurance, fuel, maintenance, repairs,
tires and other operating expenses, or taking the standard mileage
deduction, which was 56.5 cents per mile for business miles as of Jan.
1, 2013. You can add parking fees and tolls to either method. If you use
the actual expenses method the first year you use your leased vehicle
for business purposes, you must use that method for the life of the
lease. If you use the standard mileage method the first year, you can
change between methods during subsequent years.
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