How To Drive The IRS Crazy

How To Drive The IRS Crazy!

by Wayne M. Davies

Looking for an easy way to increase your business
deductions? Look no further than your driveway.

First, the general rule: your vehicle is deductible to
the extent you use it for business.

So, if you drive your car 100% for business, all car-
related expenses are deductible.

But if you use it less than 100% for business, do not
despair. Less-than-100% use is very typical among
small business owners and the self-employed -- you'll
still come out way ahead by keeping good vehicle
expense records.

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 is 36.0 cents per mile.

For 2004 the mileage rate is 37.5 cents per mile.

For 2005 there are 2 mileage rates:

40.5 cents per mile from January 1 through August 31

48.5 cents per mile from September 1 through December 31.

If you drove your car 10,000 miles in 2004, your deduction
is $3,750 -- 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 driveway.

About The Author:

Wayne M. Davies is author of three tax-slashing eBooks for small business owners and the self-employed:

The Tax Reduction Toolkit
http://www.YouSaveOnTaxes.com/toolkit

Incorporation Tax Secrets Revealed
http://www.YouSaveOnTaxes.com/secrets

How To Incorporate Yourself For Free
http://www.YouSaveOnTaxes.com/how-to-incorp

Wayne's eBooks are available separately, or at a discount as a 3-volume set:

The Ultimate Small Business Tax Reduction Guide
http://www.YouSaveOnTaxes.com/ultimate-guide

To receive a free copy of Wayne's 25-page Special Report,

"How To Instantly Double Your Deductions"

click here:

http://www.YouSaveOnTaxes.com

www.YouSaveOnTaxes.com

A Division of Wayne M. Davies Inc.

4660 W. Jefferson Blvd., Suite 220

Fort Wayne, IN 46804

Tel: (260) 459-3858 / Fax: (260) 459-0124

email: YouSaveOnTaxes@aol.com

http://www.YouSaveOnTaxes.com

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