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How To Drive The IRS Crazy

Looking for an easy way to increase your business
deductions? Look no further than your driveway.

First, the general rule: your vehicle is deductible to
the extent you use it for business.

So, if you drive your car 100% for business, all car-
related expenses are deductible.

But if you use it less than 100% for business, do not
despair. Less-than-100% use is very typical among
small business owners and the self-employed -- you'll
still come out way ahead by keeping good vehicle
expense records.

For example, if you drive your car 75% for business,
then you get to deduct 75% of your vehicle expenses.

Now to the fun part.

There are two methods for reporting your car expenses:
1. Actual Expense Method
2. Mileage Method

With the Actual Expense Method, you have to keep track
of all your vehicle related expenses, such as:
-- gasoline
-- oil
-- maintenance & repairs
-- insurance
-- license & registration
-- wash & wax
-- supplies & equipment
-- depreciation expense (including Section 179 deduction)
-- lease payments
-- loan interest
-- state and local taxes

So you add up all those deductions and multiply the
total by your business use percentage, which is determined
by dividing business miles by total miles driven.

The Mileage Method works like this: instead of tracking
all the actual expenses listed above, you only need the
number of business miles driven, which is multiplied by
the standard mileage rate published each year by the IRS.

For 2003 the mileage rate is 36 cents per mile.
For 2004 the mileage rate is 37.5 cents per mile.

If you drove your car 10,000 miles in 2003, your deduction
is $3,600 -- regardless of what your actual expenses might
have been.

NOTE: There are 2 actual expenses that are also deductible
under the Mileage Method -- interest and taxes.

Now for the obvious question:


Which method is better?

Well, here's how I look at it. If you want to get the
highest deduction, you should "run the numbers" under
both methods and then use whichever method results in
the higher deduction.

You are allowed to pick whichever method you want.

But once you pick a method, be careful to follow the rules
on "switching" from one method to the other: You can
switch from the Mileage Method to the Actual Method,
but generally are not allowed to switch from the Actual
Method to the Mileage Method.

Having said that, let's be practical. If you hate
recordkeeping, use the Mileage Method. It's much simpler
and faster. You won't have to keep all those receipts.

Even the Mileage Method requires some recordkeeping,
however. You should keep a log that documents the business
use of the vehicle. Here are 3 IRS-approved car logs:

1. Daily Log. Yep, you just record all business miles for
all 365 days of the year.

2. 90-Day Log. Here's a little-known rule -- instead of
keeping mileage records for the entire year, you can get by
with just a representative portion of the year -- and a
90-day period is considered an adequate representation
of the entire year.

So you would keep a Daily Log for a 3-month period, say
January through March. To get your annual mileage total, you
multiply the 3-month total by 4.

3. One-week Log. Here's another short-cut: The IRS also
allows you to keep a log for just the first week of each
month. Then you multiply that week's mileage by 4 to get the
monthly total.

Regardless of which method you use, there's a goldmine of
deductions sitting right there in the garage.

About the Author

Wayne M. Davies is author of 3 tax-slashing eBooks for
the self-employed, available separately or as a 3-volume
set, "The Ultimate Small Business Tax Reduction Guide".
http://www.YouSaveOnTaxes.com/ultimate-guide

 

Internal Revenue Service
The US government agency responsible for tax collection and tax law enforcement. Includes income tax forms, instructions, and agency publications.
www.irs.gov
 
Tax Information for Individuals
Access to useful information, booklets and other tools from the Internal Revenue Service.
www.irs.gov
 
Tax Center - Yahoo! Finance - Tax forms, tips and calculators.
Yahoo! Finance: Tax - Find all the resources you need for tax season. Review recent tax law changes, estimate your taxes, find tax tips and expert answers ...
tax.yahoo.com
 
Taxes: Tax Planning, Tools and Advice - MSN Money
Microsoft's Tax Preparation site, in association with Tax Server.
moneycentral.msn.com
 
Tax - Wikipedia, the free encyclopedia
Governments use different kinds of taxes and vary the tax rates: ... Taxes are most often levied as a percentage, called the tax rate, of a certain value, ...
en.wikipedia.org
 
H&R Block | Taxes, Online Tax Preparation, Tax Software, Filing ...
Offers online and in-person tax preparation and tax software, mortgages, brokerage and financial services, consumer tips and tax planning information.
www.hrblock.com
 
TaxCut Online | H&R Block | Online Taxes, File Taxes Online ...
File your Taxes online with TaxCut Online. Learn how to file taxes online here.
www.hrblock.com
 
Income Taxes, Tax Returns, Refunds, Deductions and E-File Software ...
Popular tax preparation software by Intuit. Integrates with Quicken, spreadsheets and offers state by state electronic filing.
turbotax.intuit.com
 
Taxes & Estates, Tax and Estate Planning Advice - Forbes.com
Personal Finance - Get tax and estate planning advice and information from Forbes.com.
www.forbes.com
 
Essential Links to Taxes
TurboTax Premier For Federal Returns 2005 Win/Mac, TurboTax Total Tax Solution Deluxe 2005 with State Win/Mac, TurboTax Basic 2005 Win/Mac... ...
www.el.com
 
Government > Taxes in the Yahoo! Directory
Yahoo! reviewed these sites and found them related to Government > Taxes.
dir.yahoo.com
 
Taxes - Tax News for Home and Business from CNNMoney
The latest in tax law updates, news, forms & advice from CNNMoney.com. Includes a refund savings calculator, and interactive tax lessons.
money.cnn.com
 
The Tax Foundation - Educating Taxpayers Since 1937
Devoted to educating taxpayers about tax policy and the total tax burden borne by Americans at all levels of government.
www.taxfoundation.org
 
Welcome to the Vermont Department of Taxes
Welcome to the Vermont Department of Taxes... ... Changes to Property Tax Adjustments in 2007 - updated 10/18. - Tax Expenditures Transition Report on ...
www.state.vt.us
 
Franchise Tax Board Homepage
The department that collects state personal income taxes and bank and corporation taxes for the State of California. Access to forms and tax information.
www.ftb.ca.gov
 
HM Revenue & Customs: Home Page
News and information on tax and national insurance, including downloadable leaflets and forms and the latest news on filing tax returns on-line.
www.hmrc.gov.uk
 
State and Local Tax
Piper Resources; State Tax Rates and Structure ...Federation of Tax Administrators; State Payroll Taxes Information ...Symmetry Software ...
www.taxsites.com
 
Quicken.com
www.quicken.com/taxes/ - 3k - Cached - Similar pages
 
Tax news and advice from Bankrate.com
Information on all phases of tax planning and preparation.
www.bankrate.com
 
Online Tax Advice - Tax Preparation Help - Income Tax Tips
Income Tax Tips - MarketWatch offers online tax advice and tips. ... IRS inflation adjustments mean tax break on next year's taxes. ...
www.marketwatch.com
 
 

 
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