by Richard Stim

Get the Most Out of Your Mileage Deduction
Part II of a Two-part series on travel deductions

Most crafts artists have driving-related business expenses — for example, visits to buyers, trade shows or retail customers, pick up or delivery of work and supplies or to attend seminars. You are allowed to deduct these driving expenses from your taxes when you use your car, van, pickup or panel truck for business.

There are two ways to calculate the car expense deduction: the standard mileage rate, which requires relatively little record keeping, or your actual expenses, which requires more record keeping but might give you a larger deduction.

If you own a late-model car worth more than $15,000, you’ll usually get a larger deduction by using the actual expense method because the standard mileage rate doesn’t include enough for depreciation of new cars.

On the other hand, the standard mileage rate will be better if you have an inexpensive or old car and put in a lot of business mileage.

Either way, you’ll need to have records showing how many miles you drive your car for business purposes during the year. Keep a mileage logbook for this purpose.
Commuting expenses are not deductible

You usually cannot deduct commuting expenses — that is, the cost involved in getting from your home to your primary work location. However, if your main office or studio is at home, you may deduct the cost of driving to meet clients. This is one of the advantages of having a home studio.

Using the standard mileage rate

The easiest way to deduct car expenses is to take the standard mileage rate. When you use this method, you need only keep track of how many business miles you drive, not the actual expenses for your car, such as gas or repairs.

Each year, the IRS sets the standard mileage rate — a specified amount of money you can deduct for each business mile you drive. In 2002, for example, the rate is 36.5 cents per mile. To figure your deduction, multiply your business miles by the standard mileage rate for the year. For example, if Ed, a wood carver, drove his car 10,000 miles for business in 2002, he would have a $3,650 deduction.

If you choose to take the standard mileage rate, you cannot deduct actual operating expenses — for example, depreciation, maintenance and repairs, gasoline and its taxes, oil, insurance and vehicle registration fees. These costs are already factored into the standard mileage rate.

You can deduct any business-related parking fees and tolls — for example, a parking fee you have to pay when you visit a customer’s business or residence. But you cannot deduct fees you pay to park your car at your place of work.

Calculating the actual expenses

Instead of taking the standard mileage rate, you can elect to deduct the actual expenses of using your car for business. To do this, deduct the actual cost of depreciation for your car subject to limitations, interest payments on a car loan, lease fees, rental fees, license fees, garage rent, repairs, gas, oil, tires and insurance. The total deductible amount is based on the percentage of time you use your car for business. You can also deduct the full amount of any business-related parking fees and tolls.

Deducting all these items will take more time and effort than using the standard mileage rate because you’ll need to keep records of all your expenses. However, it may provide you with a larger deduction than the standard rate.

For example, if you drive your $20,000 car a total of 15,000 miles for your crafts business (and don’t drive it at all for personal use), you could deduct $5,475 from your income taxes using the standard mileage rate (36.5 cents x 15,000 = $5,475). If you take the actual expense deduction, and keep careful records of all your costs for gas, oil, repairs, parking, insurance and depreciation, those amounts might quickly exceed $5,475.

Business and personal use of the same vehicle

If you claim actual expenses, you must divide your expenses between business and personal use for each vehicle used for a business purpose. For example, in one recent year Laura, a gallery owner, drove her car 10,000 miles for her business and 10,000 miles for personal purposes.

Laura can deduct 50 percent of the actual costs of operating her car. If you only own one car, you normally can’t claim it’s used only for business. An IRS auditor is not likely to believe that you walk or take public transportation everywhere except when you’re on business. The only exception might be if you live in a place with extensive transportation systems, such as Chicago, New York City or San Francisco, and drive your car only when you go out of town on business.

What expense records are required?

When you deduct actual car expenses, you must keep records of the costs of operating your car. This includes not only the number of business miles and total miles you drive, but also gas, repair, parking, insurance and similar costs.

RULES FOR CAR EXPENCES For more information about the rules for claiming car expenses, see IRS Publication 463, Travel, Entertainment, Gift and Car Expenses. You can obtain this and all other IRS publications by calling the IRS at (800) TAX-FORM, visiting your local IRS office or downloading the publications from the IRS Internet site at www.irs.gov.

Taking a depreciation deduction involves math

If you deduct actual expenses — regardless of how much you spend for an automobile — your depreciation deduction is strictly limited. For example, the annual depreciation deduction for cars purchased in 2000 is a maximum of $3,060 the first year, $5,000 the second year, $2,950 the third year and $1,775 thereafter. These amounts change each year.

For cars purchased between Sept. 11, 2001, and Sept. 10, 2004, and placed into service (used in business) before 2005, the first year’s deduction cap is $7,060 (a $4,000 increase over the old cap).

The depreciation deduction for your individual vehicle is calculated by using the form provided with both federal and some state tax returns.

No matter what method of deduction you use, stay on top of how many miles you drive for business, keep careful records and be sure to take the deduction, regardless of how much paperwork it adds to your life.