Deduction of a Car Used Between Home and Work When You Are Self-Employed
Self-employment offers a bonanza of tax perks, and a few relate to your vehicle. Expenses associated with your car are deductible, but the IRS sets restrictions that can limit the deductions to some extent. One such restriction relates to driving to your place of business. All other driving requires careful recordkeeping of miles and expenses as they occur.
The IRS offers two deduction options for business-related driving. You can either deduct 55.5 cents per mile driven as of the 2012 tax year, or you can deduct your automobile expenses. If you also drive your car for personal reasons, you can only count business use and miles. Your use is based on the percentage of miles driven for business purposes if you use the actual costs method. For example, if you drove 25,000 miles all year, and if 12,500 of those miles were for personal reasons, you can deduct 50 percent of your overall automobile expenses, including depreciation of your vehicle. If you elect this option once, however, you can't change your mind and deduct your mileage in the next tax year.
Driving to Work
If you conduct business from a location other than your home, you can't include the miles between your home and this location. These are personal miles. The IRS considers this commuting, and commuting isn't tax deductible. Your miles begin when you leave your business location to see clients or to do anything else that generates income or pertains to your business. If you run your business out of your home, you can begin counting your mileage from the time you drive away from your home to visit a client or attend a meeting.
Driving for Business
Whether your origination point is your home or your place of business, your tax-deductible miles aren't limited to seeing clients or business meetings. You can include trips to pick up supplies, or to the post office or the bank. However, there's a catch. If any of your stops are for personal reasons, your miles end when you do this errand. If you stop to pick up your dry cleaning, you can't use the miles from the cleaner back to your place of business.
Tolls, Parking and Other Costs
Some auto expenses are deductible whether you choose to use the mileage method or the actual costs method. These include tolls, parking, interest if you're paying off the auto loan, as well as registration fees. Interest and registration fee deductions depend on the percentage of the time you drove your car for business, but money spent on parking and tolls is 100 percent deductible. An exception exists if you incur parking fees at your place of business. You can't deduct the cost of parking your car where you work.
Beverly Bird has been writing professionally for over 30 years. She specializes in personal finance and w, bankruptcy, and she writes as the tax expert for The Balance.