If you want to take a deduction for the business use of your car, you must decide whether to deduct your actual expenses or use the standard mileage rate. The standard mileage is easier to calculate and, if the IRS questions the deduction, only requires that you provide a written detailed log of the miles driven. When deducting actual expenses, gathering the paperwork to substantiate the expenses requires more effort, but deducting the actual expenses on the return may be more beneficial in certain cases. Your Emerald Tax Service tax preparer can help you determine which method is most advantageous for you.

Using the Actual Expenses Method
Certain vehicle-related amounts you spend can be used to determine your actual expenses. Bring documentation to your interview with your Emerald Tax Service tax preparer for the following job-related vehicle expenses:

Depreciation
Insurance
Registration and license plate fees
Parking fees and tolls
Garage rent
Lease payments
Repairs and maintenance (including tires)
Gasoline and oil
Car washes
If you purchased a vehicle during 2003, you used the vehicle for business for more than 50% of the time, and you use the actual expenses method, you might qualify to take a special 30% or 50% depreciation allowance (depending on when you acquired the vehicle) on your tax return. Qualified vehicles purchased after September 10, 2001 and before May 6, 2003 may be eligible for a special depreciation allowance of 30% of the vehicle's depreciable basis. Qualified vehicles purchased after May 6, 2003 may be eligible for a 50% special depreciation allowance. The maximum depreciation deduction allowed may be limited due to the IRS passenger automobile rules. See your Emerald Tax Service tax preparer for more information on claiming depreciation for your vehicle.

The one-time, first-year depreciation that you can claim in addition to the car's regular depreciation can add up to substantial tax savings, particularly if you purchased an expensive vehicle.

You also might be able to take advantage of other vehicle-related benefits, including:

A tax credit for a qualified electric vehicle
A deduction from gross income for part of the cost of a clean-fuel vehicle you placed in service during the year
Using the Standard Mileage Rate Method
If you elect to use the standard mileage deduction for 2003, you may deduct 36 cents for every mile you drive for business purposes, certain commutes, and job searching (in a related field). If you move to a new home because of a job change, the mileage rate while moving is 12 cents per mile (these miles are deducted on Form 3903, Moving Expenses, if you meet the moving deduction requirements).

Generally, you can use the standard mileage rate whether you are reimbursed and whether your reimbursement is more or less than the amount calculated using the standard mileage rate.

To choose the standard mileage rate for a car you own, the election must be made in the first year the car is available for use in your business. In later years, you can choose to use either the standard mileage rate or actual expenses. If you use the standard mileage rate method for a car you lease, you must use it for the entire lease period. If you switch to the actual expenses method in a later year, but before your car is fully depreciated, you will have to estimate the remaining useful life of the car using straight-line depreciation. If you use the standard mileage rate for the tax year, you cannot deduct any of your actual car expenses for that year, other than parking, tolls, car rental fees if not reimbursed by your employer, or the personal portion of any vehicle registration fees (if based on the car's value). The personal portion of vehicle registration fees is deducted as personal property tax on Schedule A, Itemized Deductions, Line 7.

You cannot claim the standard mileage rate in the following instances:
You own two or more cars that are used for business at the same time. You are not using two or more cars for business at the same time if you alternate using the cars for business (you use different cars at different times).

Your employer provides you with a car. In this instance, you might be able to deduct the actual expenses of operating that car for business purposes. The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year.
You can deduct any additional costs you had for hauling tools or instruments (such as the rental of a trailer you tow with your car). You cannot deduct fines you paid for traffic violations, sales taxes paid when purchasing a car (these are part of the car's basis when calculating depreciation), or, if you are an employee, interest paid on a car loan, as this interest is treated as personal interest. However, if you used a home equity loan to purchase your car, you may be able to deduct this personal interest on Schedule A.

If the car was used only partly for business, expenses must be allocated between personal and business use. You will usually use a percentage based on miles driven for business purposes during the year over total number of miles driven during the year.

Not all commuting miles are treated the same for tax purposes and they may not be considered to be for business purposes. Your costs of driving a car between your home and your main or regular place of work are personal commuting expenses and are not deductible, no matter how far your home is from your regular place of work and regardless whether you worked during the commuting trip. For example, if you make business calls on your cell phone while driving or you have a business associate riding with you and you discuss business on the way to work, this does not change the regular commute from a personal expense to a business expense. Additionally, if you have a business advertisement on your car or if you haul tools or instruments in your car while commuting to and from work, the regular commute is still considered a personal expense.

Although regular commuting to and from work is not deductible, commuting miles may count as business use if your home is your office, if you are working out of a temporary location, or if you work in two or more different places during the day. For example:

Your principal place of business is in your home. You can deduct the cost of round-trip transportation between your qualifying home office and your client or customer's place of business.

You have no regular office and you do not have an office in your home. In this case, the location of your first business contact is considered your office. Transportation expenses between your home and this first contact are nondeductible commuting expenses. Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Although you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another.

You regularly work in an office in the city where you live. Your employer sends you to a one-week training session at a different office in the same city. You travel directly from your home to the training location and return each day. You can deduct the cost of your daily round-trip transportation between your home and the training location.

You do not have a regular place of work but you ordinarily work in the metropolitan area where you live. You can deduct your daily transportation costs between your home and a temporary work site if it is outside that metropolitan area.

You work at two places in one day. Whether or not you work for the same employer, you can deduct your expense of getting from one workplace to the other. However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost to go directly from the first location to the second.
Fees you pay to park a car at work or tolls paid to get to work are nondeductible commuting expenses. However, business-related parking fees and tolls are deductible (for example, when visiting a customer, traveling to a temporary work location, attending a seminar, or when looking for a job in a related field) whether you take the standard mileage method or actual expenses method.

Please contact a Emerald Tax Service office near you for assistance with calculating your job-related vehicle expense deduction.