- While there are a few exceptions, most tax deductions apply to offset the cost of income production. Therefore, you can claim the deductions for a business expense. However, the IRS does permit a few personal tax deductions to encourage certain behaviors, such as saving for retirement and paying off college loans. In general, you incur a business expense as a business owner or employee during the normal course of business. Not all business expenses are tax deductible and only certain amounts are pertinent to automobiles.
- If you use the car you lease for both personal and business purposes, only the portion related to business use is tax deductible. For example, if you use your automobile 30 percent of the time for business, then 30 percent of the cost may be tax deductible. Business purposes do not include general travel to and from work, taxi services, fleet operations or a qualified mail carrier who receives a reimbursement. If your employer reimburses you for business expenses, then either the tax deduction does not apply or, if you claim the tax deduction, you must include any reimbursement in your income. There are two methods to calculate the tax deduction for a purchased or leased automobile.
- Whether you own or lease the car, you can track your miles and calculate a tax deduction that can save you money. For 2011, the standard mileage rate allowed by the IRS is $0.51 per mile, which increased from $0.50 in 2010 To calculate, keep a record of the miles driven for business purposes, not including the commute to and from work, and multiply by the standard mileage rate. For example, if you drive 500 miles in 2011 for business, then you are eligible to claim a deduction of $255 (500 x $0.51). To use the standard mileage rate, you must choose it in the first year you begin using the car for business purposes and claim it for the duration of the lease. Even if you choose this method, you can deduct your personal property taxes on your vehicle if you itemize your deductions.
- If you prefer, you can elect to claim a deduction using the actual expense method. Actual expenses include: licenses, lease payments, insurance, oil, tolls, gasoline, garage rent, parking fees, depreciation, registration fees and tires. Adding up the total amount of these expenses and multiplying by the percentage of time for which you use the car for business gives you the amount to claim as a tax deduction. For example, if your total automobile expenses for the year equals $1,000 and you use the car for business 30 percent of the time, then you may claim a $300 tax deduction. Keep accurate records and receipts in case of an audit in the future.
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