Mileage Deductions 2009 - Mileage

For example, if you drive your car 75% for business,
then you get to deduct 75% of your vehicle expenses.

Now to the fun part.

There are two methods for reporting your car expenses:
1. Actual Expense Method
2. Mileage Method

With the Actual Expense Method, you have to keep track
of all your vehicle related expenses, such as:
-- gasoline
-- oil
-- maintenance & repairs
-- insurance
-- license & registration
-- wash & wax
-- supplies & equipment
-- depreciation expense (including Section 179 deduction)
-- lease payments
-- loan interest
-- state and local taxes

So you add up all those deductions and multiply the
total by your business use percentage, which is determined
by dividing business miles by total miles driven.

The Mileage Method works like this: instead of tracking
all the actual expenses listed above, you only need the
number of business miles driven, which is multiplied by
the standard mileage rate published each year by the IRS.

For 2003 the mileage rate was 36 cents per mile.
For 2004 the mileage rate was 37.5 cents per mile.
For 2005 there are two mileage rates: 40.5 cents/mile
from January 1 through August 31, and 48.5 cents/mile
from September 1 through December 31.
For 2006 the mileage rate is 44.5 cents per mile.

If you drove your car 10,000 miles in 2005, your deduction
is at least $4,000 (depending on how many miles you drove
during the last four months) -- regardless of what your
actual expenses might have been.

NOTE: There are 2 actual expenses that are also deductible
under the Mileage Method -- interest and taxes.

Now for the obvious question: Which method is better?

Well, here's how I look at it. If you want to get the
highest deduction, you should "run the numbers" under
both methods and then use whichever method results in
the higher deduction.

You are allowed to pick whichever method you want.

But once you pick a method, be careful to follow the rules
on "switching" from one method to the other: You can
switch from the Mileage Method to the Actual Method,
but generally are not allowed to switch from the Actual
Method to the Mileage Method.

Having said that, let's be practical. If you hate
recordkeeping, use the Mileage Method. It's much simpler
and faster. You won't have to keep all those receipts.

Even the Mileage Method requires some recordkeeping,
however. You should keep a log that documents the business
use of the vehicle. Here are 3 IRS-approved car logs:

1. Daily Log. Yep, you just record all business miles for
all 365 days of the year.

2. 90-Day Log. Here's a little-known rule -- instead of
keeping mileage records for the entire year, you can get by
with just a representative portion of the year -- and a
90-day period is considered an adequate representation
of the entire year.

So you would keep a Daily Log for a 3-month period, say
January through March. To get your annual mileage total, you
multiply the 3-month total by 4.

3. One-week Log. Here's another short-cut: The IRS also
allows you to keep a log for just the first week of each
month. Then you multiply that week's mileage by 4 to get the
monthly total.

Regardless of which method you use, there's a goldmine of
deductions sitting right there in the garage.