This is the second of four articles (click here for Tip #1, Tip #3 and Tip #4) written by my husband Pete Lachance, CPA, who will provide some tips and tricks to help home party consultants reduce their taxes and make their life easier when filing their home party business taxes.
Auto Deductions
Auto expenses are typically the largest deduction for a home party business. The IRS generally allows businesses to use one of two methods to deduct auto expenses:
- Mileage method
- Actual Use method.
The Actual Use method is complex and outside the scope of this article. However, this method sometimes produces a bigger tax deduction if someone uses their vehicle more than 50% for their home party business.
The Mileage method should be used by most home party plan consultants because it is by far the easiest of the two methods. The auto deduction under the Mileage method is computed by taking total business miles and multiplying by the IRS auto mileage rate of:
- 50.5 cents per mile from January 1 to June 30, 2008
- 58.5 cents per mile from July 1 to December 31, 2008
- 55 cents per mile for 2009 (although the IRS may change this during the year)
The IRS requires a log book to support the auto deduction under the Mileage method. The log book must contain the following for each trip:
- Miles
- Dates
- Destination
- Business purpose
I highly recommend keeping a tiny notebook in your car and jotting down this information after every business related trip. Not only will this comply with IRS requirements but I also believe it will produce a bigger tax deduction because people who don’t write down their business miles tend to underestimate the amount of miles driven when thinking back about how often their auto was used for business at the end of the year.
Feel free to ask any tax questions related to auto expenses in the comments form below. Thanks for reading…
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{ 2 comments… read them below or add one }
Great advice! thanks for sharing… something I do is I print my destination on MapQuest every time and then make my notes on the back of it. So at the end of the year i have a file of “mapquest” directions that have all the info I need for my tax guy.
That is a great idea, the more paper documentation the better my husband says!