Need Some Deductions for 2011?

Don't overlook these!

Updated for 2011

Small Business Deductions: Car and Truck Expenses

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What is the Mileage Allowance Method?

Instead of deducting actual vehicle expenses, where you would need to collect receipts for your operating expenses and compute depreciation every year, you may choose to deduct a flat IRS allowance instead. You simply multiply your business miles traveled for the year by the applicable IRS business mileage rate for the year to determine your allowance.

The mileage allowance only takes into account vehicle operating expenses and depreciation. It does not take into account, tolls, parking fees, towing expenses, or interest on a car loan.

Only self-employed persons may deduct business-related interest on a vehicle loan.
Employees may not claim any interest on a vehicle loan even if they use their vehicle 100% for their job.

A self-employed person takes the vehicle expense deduction on Schedule C, line 9.

Business Mileage Rates

For tax year 2011, there are two business mileage rates:

January 1, 2011 through June 30, 2011: 51 cents per mile
July 1, 2011 through December 31, 2011: 55.5 cents per mile

When You May Not Use the Flat IRS Allowance

You may not claim the IRS business mileage allowance if:

You did not use the flat IRS allowance the first year your vehicle was placed in service for business use (e.g., you claimed actual expenses in 2010. You may not use the mileage allowance in 2011 or any other year).
You have depreciated your vehicle using the ACRS or MACRS methods, including straight-line MACRS
You claimed first-year expensing
You claimed first-year bonus depreciation
You use five or more vehicles simultaneously in your business, such as a fleet of cabs or limousines.
You use your vehicle for hire. For example, you shuttle people around for a fare.

Items You May Deduct in Addition to the Mileage Allowance

The mileage allowance only takes into account business-related vehicle operating expenses and depreciation. It does not take into account a variety of other business related vehicle expenses:

The following items may be deducted in addition to the mileage allowance:

Tolls
Parking fees
Interest on your car loan (only allowed if you're self-employed; not employees)
The personal property tax portion of your registration fee (if you live in a state that bases part of its registration fee on the value of the vehicle rather than its weight, model, year, or horsepower. Call your DMV)
- If you use your car less than 100% for business, you deduct the business-related portion of the personal property tax on Schedule C and the nonbusiness portion of the personal property tax on Schedule A, if you itemize your deductions.

Here's how to deduct the above items:

First determine your business mileage allowance:
- Multiply your business miles traveled during the year by the IRS business mileage rate for the applicable year.
Next, add the items listed above to your mileage allowance. This is your total deduction
Finally enter the total amount determined in 1 and 2 on line 9 or Schedule C

Business and Personal Use

If you use your vehicle for both business and personal use, you may only deduct the business-related portion of the total deduction. In other words, if you used your vehicle 80% for business and your total mileage allowance is $20,000, you may only deduct $16,000 (80% x $20,000)

Example:

The Facts:

Your business is organized as a sole proprietorship. Therefore, you're classified as a self-employed person.
You used your car for both business and personal purposes during 2011.
Your vehicle was first placed into service for business use in 2010, when you started your business. You claimed the IRS mileage allowance in 2010.
For 2011, you elect to claim the IRS mileage allowance again.
Your total miles traveled during 2011 were 20,000, broken down as follows:
- Business miles: 16,000
- Personal miles: 4,000
Your business-use percentage is 80% (16,000/20,000).
There are two business mileage rates for 2011.
- January 1, 2011 through June 30, 2011: 51 cents per mile
- July 1, 2011 through December 31, 2011: 55.5 cents per mile
Since your business is not seasonal, your business miles traveled through the year were spread out evenly.
- You split the 16,000 business miles traveled in half for purposes of applying the two rates (8,000 first half and 8,000 second half).
You had a loan on your vehicle and paid $2,000 in interest during 2011.
You did not pay any tolls, parking fees, or towing expenses during 2011.

Result:

Your total deduction is: $10,520, figured as follows:
- Mileage allowance for first half of 2011: $4,080 (.51 x 8,000)
- Mileage allowance for second-half of 2011: $4,440 (.555 x 8,000)
- Interest on car loan: $2,000
- Your total deduction equals:
  - Mileage allowance of: $8,520 ($4,080 plus $4,440)
  - Plus $2,000 interest on car loan
You report the $10,520 on Schedule C, line 9

Switching Methods

If you elect to start out using the actual expense method for a particular vehicle the first year the vehicle is placed in service for business use, you cannot use the standard mileage rate for that vehicle in any other year. You must continue using actual expenses for that vehicle.

If you begin using the standard mileage allowance the first year the vehicle is placed in service for business use, then you may use actual expenses plus straight line depreciation for the remaining

Recordkeeping

If you use the actual expense method you'll have to save receipts and any other documentation that supports your deduction.
Estimates are not acceptable to the IRS, unless your records were lost in some type of disaster or for some other reason acceptable to the IRS.

Leased Vehicles

If you start out using the mileage allowance method for a leased vehicle you must continue using it for the entire lease period, including renewals.

Who May Not Use the Mileage Allowance Method

You may not use the mileage allowance method if:

You used the actual expense method the first year the vehicle was placed in service.
You depreciated your car using the ACRS or MACRS methods, including straight-line MACRS.
You claimed a first-year expensing deduction or first-year bonus depreciation deduction.
You use your vehicle for hire (e.g., taxi cab, limo service)
You operate a fleet (you use five or more vehicles simultaneously).

Car Expenses: Schedule C and Car Expenses; Mileage Log; Mileage Sampling

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