Business Use of a Car

If you use your car, van, or some other type of vehicle in your business, you are entitled to certain tax deductions for expenses incurred in connection with the vehicles.

If a vehicle is used exclusively for business purposes, you may generally deduct the full cost of operating the vehicle. If you use a vehicle for business on a part-time basis, you will have to allocate your expenses based on your business and personal use.

The business portion of your costs will be deductible on Line 9 of Schedule C. The personal portion will be nondeductible except for any costs of using the vehicle for charitable purposes, for medical purposes, or for a tax-deductible move. Also, if you or your spouse is employed by another business, a portion of the expenses for the car may be deductible as an employee business expense.

But what, exactly, is "business use of a car?" Generally, the IRS divides all car usage into three categories: business, commuting, and personal. "Business use" generally means travel between two business destinations, one of which may include your regular place of business. Typical travel expenses that are deductible include expenses for:

• travel from one job to another
• travel from one customer or client to another
• travel from your office or business location in order to perform business tasks, such as to pick up supplies and inventory, to check your business post office box, or to make a bank deposit

Temporary assignments. In addition, if you have a regular place of business, the cost of traveling between your home and a temporary work site that is not the regular place of business is deductible, regardless of the distance traveled. A temporary work site is a place where an individual is realistically expected to perform, and does perform, services for less than a year.

Also, if you do not have a regular place of business and you travel outside of the metropolitan area in which you work to a temporary work site, you are allowed a deduction for your travel costs. Travel within your metropolitan area is not deductible.

Commuting expenses. Vehicle expenses incurred in commuting between your home and your main or regular place of business are not deductible expenses. This is true even if you have an advertising display on your car, or you use the commute to listen to business books on tape or to phone your clients.

Save Money However, remember that costs of traveling between your home and a business location that is not your regular place of business is deductible. You can take advantage of this rule by making a business related-stop on the way to work and on the way home, thereby converting a portion of your nondeductible commute into deductible business travel! Make sure to keep excellent records and have an actual business justification for the trips!

• If you operate out of a home office, special rules apply.
• If you must transport tools and materials, and as a result you have additional costs, you may be able to deduct those additional expenses.
• Keeping records of business usage is essential if you want to claim a deduction.