Tax Secrets of the Wealthy
By IRV BLACKMAN, Special to the Eagle
Do you use your car for business? If the answer is yes, you want to read this — especially if you hate keeping records of the actual expenses you pay for the business use of your car. You'll like what you are about to read. There's another way to deduct the business use of your car. An easy way. And often, it's a big tax saver, too.
It's called the optional mileage allowance method. Use this method, and keeping records of each auto expense is history.
Instead, only two simple tasks will capture your deduction: Keep track of the business miles you drive and then apply the IRS' mileage allowance rate. Every year the IRS announces the rate for the next year. The rate may go up, down or stay the same. The good news is the rate for 2004 is 37.5 cents per mile — up from 36 cents in 2003.
For example, Sue drives her auto far and often for business every year. She is fed up with keeping records of gas receipts, repairs and maintenance. For 2004, Sue is keeping track of only business miles.
Suppose she drives a total of 30,000 business miles in 2004: How does Sue figure her auto expense deduction? Simple. Just multiply the 30,000 miles by 37.5 cents. Sue's 2004 deduction is $11,250. Great tax mileage!
Wait. There's more. Sue also can deduct 100 percent of her business tolls and business parking.
Caution: The mileage allowance is not always your best tax bet. Take advantage of it only if you have neither the time nor the inclination to keep those expense receipts, or if past practice shows that your total actual expenses (including depreciation) are less than the allowance amount.
If your actual expenses are more than the allowance, you must decide if the reduced record-keeping (mileage only) is worth the smaller deduction. Hint: The more miles you drive, the more likely the mileage allowance will save you tax dollars, as well as time.
A few more things you should know:
— The 37.5 cents per mile includes depreciation. So instead of computing depreciation separately, 16 cents (of each 37.5 cents) is assumed to be depreciation. When you sell or trade your car, just reduce your tax basis by 16 cents for each mile used under the optional method.
— Starting in 2004, the optional mileage allowance method can be claimed by firms with up to four vehicles that are being used at the same time. A welcome simplification.
As usual, the IRS falls short when giving a tax break. Try this: The rate for a car operated in connection with charitable activities remains unchanged at a lowly 14 cents per mile.
But, surprise! Deductions for medical and moving expenses have been boosted to 14 cents, up from 12 cents.
Irv Blackman is a certified public accountant and lawyer who specializes in estate planning, business succession and asset protection.
This is not a commitment for a loan or an ad for credit as defined by paragraph 226.24 of regulation Z.