Deductions & credits

You can deduct the business part of the interest on your car loan.  You can either declare actual expenses or mileage.

Automobiles

As a small business owner, you can deduct automobile expenses for visits to clients, customers or travel to business meetings away from your regular workplace. If you have a home office, a drive from your home to a supplier and back home again is a 100% deductible business expense.

When figuring expenses, you may choose between taking the standard mileage rate (which generally changes every six months to a year), or deducting your actual expenses for items such as gas, oil changes, tires, repairs, preventive maintenance, insurance and registration.

• If you choose to deduct your actual expenses in the year you start using your car for business, you can't switch to the standard mileage rate later.
• If you choose the standard mileage method first, you can switch to actual expenses in a later year.

In choosing the method that yields the higher deduction, the number of miles you drive each year is probably the most important factor.

• If you do a lot of driving, then the standard mileage rate method may work better for you.
• Automobiles that consume more gas may let you claim a higher deduction using the actual expense method.

If you decide to deduct your actual expenses, you must keep a log of your trips noting the date, the miles driven, and the purpose of each trip. Try to keep a record of your trips as they occur, when it's easier to keep track of the details.

• Keep a record of your gas purchases, insurance and registration payments, and repairs and maintenance costs.
• If the IRS ever audits you, you will need to provide written documentation to substantiate your deduction.

If you're self employed, even if you claim the standard mileage rate, you can also deduct:

• the business part of interest on your car loan,
• state and local property taxes, and
• parking fees and tolls.