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Work-Related Expenses

There are a host of special rules associated with work-related expenses. Many of the issues discussed in this section apply to both employees and self-employed individuals. For more information on self-employment, see the Small Business Section.

Vehicle Expenses

Business Vehicles
If you use a vehicle for business purposes, you are allowed to deduct the business portion of the operating expenses on your business return, even if you use the car for both business and personal purposes. There are two methods for determining the portion of expenses used for business purposes: the standard mileage rate method, and the actual expense method.

Standard Mileage Rate Method: The standard mileage rate takes into account the current average cost of fuel, oil, insurance, repair, maintenance, and depreciation expenses. Business-related parking and toll expenses are also deductible.

Caution: If you don’t use the standard mileage rate for the first year the vehicle is placed in service, you will not be able to use it in future years.

Actual Expenses Method: First, determine the entire actual cost of operating the vehicle (including parking fees and tolls) for the past year. Next, calculate what portion of this cost is attributable to business use of the vehicle.

Both methods may include interest paid on the car loan for deducted on business returns. However, this deduction is not permitted for employees deducting job connected car expenses as part of their itemized deductions.

Business Transportation

Home to work: Day-to-day travel between home and work is typically not deductible, even if the trip is made more than once a day. However, if you travel to multiple work locations in a single day, any travel between the first and last work location is qualified as deductible travel. In other words, you can deduct the costs as long as you aren’t leaving home or returning home.

Away from home travel: Travel between your home and a temporary work location which is outside the metropolitan area where you live and work is deductible unless one of these two conditions are met:

bullet.png Multiple locations: You have one or more regular work locations away from your home

bullet.png Home office: Your home is your primary place of business

For Tax Purposes, Is It Better To Sell or Trade-in a Business Vehicle?

It does make a difference on your taxes if you sell or trade-in your business vehicle.

Sell: By selling, you will incur either a taxable gain or loss which will have to be reported on your return.

Trade-in: If you trade in your old business vehicle for a new one, any gain or loss on the old vehicle is adjusted into the depreciable basis of the new one. Thus, you don’t have to report any gain or loss.

If you’ll end up having a loss, it’s better to sell the vehicle and lower your taxable income. If the sale would give you a gain, it might be better to trade it in. Just be sure to consider whether the tax benefits exceed the additional money received from selling the vehicle.

Vehicle used partly for business: Loss or gain will be prorated for the business use of a vehicle partly for business and partly for personal use, reducing the potential gain or loss.

Taxation Solutions, Inc.

12250 Queenston Blvd Suite H, Houston, TX 77095