Automobile deductions can help lower the amount of self-employment tax you will pay each year. To protect yourself and to get an accurate accounting of your mileage, keep a logbook in your car and update it after every trip with notations on whether it was for personal use or business use. You can also use the logbook to record maintenance to your vehicle, which can also be deductible on your income taxes. You can find printed logbooks at office supply stores, or you can create your own using your computer. There are a number of sites where you can download a template as well. The key is to use the logbook regularly to lower your income taxes and to keep your receipts in case you are ever audited as well as for your own records.
Record Your Car’s Odometer Reading at the Beginning of the Year
On January 1st of each year, record your beginning mileage for the next year. This figure is also your ending mileage for the previous year. It is easier to figure out your percentage of automobile expenses if you know how much you drive for personal reasons and how much you use your car for business reasons.
Record Your Car’s Gas Usage
Make a habit of updating your logbook whenever you stop for gas. You can make a quick notation about the price of gas, how many gallons you bought, and if you purchased any maintenance products like oil or antifreeze. If you update your logbook at each stop, you will save yourself countless hours trying to pour over a stack of receipts at the end of the year to figure out exactly where you went and why.
Record Your Car’s Maintenance
A logbook is also a great place to keep track of your car’s maintenance records. When you have the oil change, note the date, your mileage and how much it cost to change the oil. This record will help you to plan for your next schedule maintenance as well as to know how much you can deduct from your taxes.
Record Your Car’s Mileage for Personal Use:
When you return home, take a few minutes to update your logbook. Note where you went and why. Jot down a quick note such as if you went pick up the kids from school or to the store to buy groceries. This type of trip in not deductible, but you can prove to the Internal Revenue Service that your diligent records are accurate.
Record Your Car’s Mileage for Business Use:
Note in your logbook when you use to vehicle for business use. This can include going to the store to buy paper or supplies. It also includes things such as a realtor going to show a home or a rancher going to pick up feed for their livestock. Any time you use your vehicle it will fall into one of two categories, business or personal. If your trip included business and personal usage such as picking up groceries on your way home from showing a house, record it as a business use only. However, do not try to say you went to show a house then went 30 miles out of your way to pick up groceries. Use common sense to make your records as accurate as possible.
End of the Year Calculations:
At the end of each year, calculate the total mileage you drove, the amount you paid for maintenance, and note how much was for business usage and how much was for personal usage. Calculate the percentage of business mileage by taking the yearly figure of how much you drove for business and dividing it by the total miles driven for that year. For example: You drove 500 miles for business and 1,000 miles total. 500 divided by 1000 equals 50 percent. This means you can deduct 50 percent of the total cost of maintenance of your car as well.
Other items that may be deductible include tolls, parking fees, insurance premiums and automobile depreciation. Your logbook can be a lifesaver when it comes time to calculate your automobile expenses at the end of the year. It can save you countless hours of pouring over faded receipts and trying to remember just where you went last February and why.