Most self-employed folks and people who use their cars for their jobs are losing money out the whazoo because of higher gas prices — especially this year. The IRS allows a choice between two methods of accounting for your automobile expenses. Actual expenses or the standard mileage rate can be used to determine your expense for operating your automobile. Most people, at least 95%, use the standard mileage allowance that the IRS determined the prior year. For most years, that does not work out too bad for the average driver, but this year will probably be a different story.
For 2008, the IRS allows you to use 50.5 cents per mileage as the standard rate. This rate was determined in the fall of 2007 based on a gasoline price of $2.949 per gallon. If you are spending closer to $4.00 per gallon now and not tracking your actual expenses, you could be missing out on a big chunk of tax savings.
For example, if I drive 8,000 miles for business and put a total of 12,000 miles on my vehicle for the year, I have 75% business use. Using the standard mileage rate, I would get a deduction of $4,040. But if actual expenses are used and the higher price of gasoline is factored in, my deduction could be closer to $5,000.
It is not too late to start tracking your actual expenses for 2008. You probably charge your gasoline and repairs on your credit card statement so you do still have records. Going forward, get an envelope or something similar and place it in your glove compartment or console of your car. Each time you fill up or get a repair, just put the receipt in the envelope. At the end of the year, use the worksheet from our website and summarize your totals. Provide it to your CPA along with your tax info and they can help you optimize your deduction and hopefully save some money.
Donna Bordeaux is a Certified Public Accountant and Personal Financial Specialist with Bordeaux & Bordeaux, CPAs, PA in Lake Wylie, SC (a suburb of Charlotte, NC). For further information about Donna or her firm, please visit www.charlottecpafirm.com.