Maximizing Auto Deductions

Tax advantages / disadvantages of leasing an automobile for the business?

Car and truck expenses for trips on behalf of your business are a deductible business expense whether you own or lease a vehicle. You must calculate your Business Use Percentage broken down by business, commuting and personal miles. Only business miles are deductible. Once you have your business use percentage, you have two methods for figuring your deduction. They are mileage based on an IRS issued mileage cost estimate, or actual expenses. A lease payment is an actual expense along with fuel and other maintenance expenses.

It is important to note that for most vehicles and drivers the Automobile Association of America estimates that the 2009 actual costs per mile exceed the IRS flat rate when gas is above $2.30 per gallon. However this might not be the end of the story. When you purchase a vehicle instead of leasing you also claim depreciation as an expense. In years such as 2010, Congress has authorized section 179 bonus depreciation which could give you a sizable deduction this year, which could help offset one time increases in income such as from a Roth IRA conversion. Also, if you own your vehicle you can switch from mileage to actual expenses, but not the other way around.