Curbing taxes on business cars - car expense write-offs; excerpt from "Price Waterhouse Personal Tax Advisor 1989-1990"

Nation's Business, March, 1990 by Donna S. Carpenter

Curbing Taxes On Business Cars

These tips will help you make the most of tax write-offs for the car you use in business.

The company car has been around longer than the Internal Revenue Code. So you would think that by now the rules governing write-offs for business cars would be clear-cut and easy to understand. Well, think again. While the rules for writing off business automobiles are complicated, awareness of some factors should see you through them.

Here is what you need to know.

Keeping Records

Uncle Sam says that you must substantiate the business use of your car, and that means you must maintain adequate records. You are not off the hook if you use a car owned by your employer, either. These record-keeping rules apply regardless of whether you own the car or it is provided to you by your company. The best way: Keep a log handy to record your business miles, your destination, and the business purpose of your trip.

These records are not just for show. When you or your employer files annual tax returns, the IRS wants proof of your automobile expenses and usage.

It wants to see the number of miles you logged for business. It wants to know the total number of miles you drove. And if you are driving a company car, the IRS wants to know if your employer allows you to use the automobile to commute.

Finally--and most important--the IRS wants to know if you have support for your deduction. If the answer is yes, you are better off if your evidence is written.

Business Driving Defined

When it comes time to write off automobile expenses, here is the first question you must ask yourself:

"What percentage of my car's use may I attribute to business?"

The IRS defines business use as the miles you drive your car between two business locations--your office, say, and the office of a customer.

Commuting is never business use. It makes no difference what type of work you do, how far you travel to your office, or what crisis you are about to face.

A trip to work is personal and not deductible. And making a business phone call or holding a business meeting in your car while you drive will not change that fact.

Furthermore, commuting--in the eyes of the government--involves more than driving your car to and from your home to your place of business.

For an employee, the IRS defines commuting as the first trip in the morning and the last trip home. So if you drive from your home to a customer's office, you are--in the eyes of the IRS--commuting. And you are not entitled to classify the trip as business.

Tip: The law carves out an exception to the commuting rule for people who are self-employed and do business from a bona fide home office. These taxpayers may claim--as business mileage--trips to and from home.

Let's say you are a physician in private practice in Chicago, and you maintain an office on the first floor of your town house. You see patients in your office, but once a day you drive 12 miles to a local hospital to make your rounds. Under the rules, you may claim as business mileage the 12 miles to the hospital--and the 12 miles back--even though you are driving to and from your home. The reason is, your home is also your office.

Business Use Of A Personal Car

When you deduct car expenses, you have two choices: You may claim a flat amount for each business mile you drive--known as the standard rate--or you may write off the actual costs of operating your automobile. Here is how the two methods work.

Using the standard rate. The standard mileage rate for 1989 equals 25.5 cents a mile for the first 15,000 miles of business travel in a year and 11 cents a mile for mileage that tops 15,000. [For 1990, the standard mileage rate is 26 cents a mile for all business travel, not just the first 15,000 miles.]

There is one catch, though: For 1989, you may not use the standard 25.5-cents-a-mile deduction on cars that you have fully depreciated--that is, cars you have driven for more than 60,000 business miles.

For these automobiles, you may claim only 11 cents a mile.

Caution: Sometimes you are not allowed to use the standard mileage rate and must write off actual expenses. The two instances: when you lease your car and when you have claimed accelerated depreciation on your car in a previous year.

Actual Expenses. In most cases, your actual expenses will exceed the standard mileage deduction. So you should opt to write off actual costs.

A portion of all of the following expenses is deductible (the percentage you write off equals the percentage of your car's mileage that you attribute to business):

* Automobile-club memberships.

* Batteries.

* Driver's license.

* Gasoline and oil.

* Insurance.

* Lubrication and repairs.

* Registration and other licensing

fees.

* Supplies, such as antifreeze.

* Temporary rentals.

* Washing and waxing.

You also may write off tires with a life of less than one year. (You should depreciate tires that last longer and are purchased separately from the car.)

But you may not deduct on your personal return the cost of parking your car at or near your office. However, if your company provides you with parking, the value of this fringe benefit is not taxable to you. So your employer does not report it as income on your Form W-2.