Irs Publication 463

Easy Tips on How to Calculate Automobile Operating Expenses for ...

The Internal Revenue Service (IRS) offers up Publication 463, a 59-page novella that includes how to calculate automobile operating expense for business use. You can find a link to the publication in the references section, or you can use the tips found here!

Basically Publication 463 explains you can determine allowed expenses in one of two ways:

Take the allowed mileage deduction or $0.50 per mile and toll expenses or,

Use the actual car expenses for the year – These expenses include, tires, licenses, gas, oil, lease payments, insurance, garage rent, parking fees, registration fees, and repairs.

Let’s look at an example of each of the above expense deductions.

The current allowed mileage (2010-2011) is $0.50 per mile, meaning for every “business” mile you drive, you can claim fifty cents for each mile. Under the allowed mileage example, any tolls you pay can also be used as an expense. Example:

John drove 25,000 miles in 2010; however, only 10,000 miles were actual business miles. He also paid $100 in toll charges in 2010.

Total Mileage deduction - $10,000 x .50 = $5,000

Tolls Paid: $150

Total Deduction allowed - $5,150.

Keep in mind when using the allowed mileage calculation you must keep a record of actual business mileage traveled in a log as a backup plus all your toll receipts.

Nothing is ever this simple with the IRS, right? Of course not! Publication 463 offers stipulations on how to determine which car expenses you qualify for—and often you may qualify for both, so you might want to calculate both to see which is the larger deduction. In our above example, if John was eligible to use either the actual mileage or the actual car costs, it would be prudent for him to use the $0.50 per mile or $5,000 deduction than the $1,900 deduction of actual car expenses.

However, John may not qualify for both according to the IRS.

Time Car Placed Into Service – Let’s say John began using his car in 2008 and didn’t claim the allowed mileage deduction for 2008. In a case such as this, because he chose not to deduct his mileage expense in 2008, in 2010, he must use the actual car expense method. If he would have used the mileage deduction the first year the vehicle was placed into service, in year 2010, he could choose either method, whichever gave him the largest deduction.

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