Making Travel Less Taxing: Car Expenses

Very good info. I have been able to deduct my car expenses for many years and it is a nice deduction. Now if I could just get rid of the AMT I seem to owe every year it might help.

@Daninstl - thanks! Yes, the AMT is quite annoying especially since the current impact of the tax is far beyond what the original intent was. I see many of my clients getting hit by the AMT due to the amount of state and local income taxes they pay.

Wow I still can't believe how much stuff you guys across the Pond are allowed to deduct from your taxes - very jealous, must massively reduce the effective rate you have to pay!

Hi Lucky, is it just me or does the picture with the Lamboghinis have a very Singaporean-esque background?

@Alan, yes there are a lot of potential deductions, but the other side of the coin is how complex complying with our tax system is compared to other countries. Our system is heavily influenced by various interest groups that have been able to lobby Congress successfully to include deductions for their interests. And, Congress has chosen to incentivize certain behaviors through the tax code (e.g. granting a deduction for charitable giving...but only in certain cases), adding to its complexity.

@Zhong Liang Ong - excellent observation! I took that picture outside the Marina Bay Sands hotel in Singapore last December.

Agree re the complexity, Scott - although if you can work the system then it's a pretty good effective tax rate you end up with!! OTOH the threshold for our 40% tax rate keeps heading lower and lower with only a relatively small personal allowance and really very little by way of deductions available (perhaps $1500 or so at most for work-related costs). On top of 20% VAT/sales tax too... 😉

"For a business-use vehicle, you can calculate your expense based on either a standard mileage rate or your actual expenses. If you want to use the standard mileage rate, you must use it in the first year you use the vehicle for business purposes. In subsequent years, you may choose to use either the actual expense or standard mileage method; however, if you use the actual expense method the first year you use the vehicle, you cannot later switch to the standard mileage rate."

I'm a CPA working for a company but doing tax work on the side and this just came up the other week. It's pretty important to realize this as one may be tempted to take actual expenses (and bonus depreciation) in the first year however by doing that it prevents the standard mileage rate in future years which could have a huge impact to a taxpayer that drives a significant number of miles!

Anyway it got me thinking, what happens to the standard mileage rate in the far out future. If you assume 22 cents of it is for depreciation, then driving 100K miles on a car that cost $22,000 new would make it fully depreciated. After that point in time, are you allowed to only take the 33 cents for standard mileage rate (or actual expenses not including depreciation)? Does tax software typically handle this stuff fairly well?

@Jeremy - Yes, I agree. I typically advise clients who anticipating keeping a vehicle for a long time to use the standard mileage rate; it's a far easier recordkeeping task to just count miles than actual expenses, as well.

No, in my experience, tax software does not handle these issues that well. Particularly in the case of a taxpayer who isn't as fastidious in their recordkeeping, tracking a vehicle's depreciation over time can be a large task.