Standard Mileage versus Actual Expenses: which of these techniques is preferred above the other? It may surprise to know that no easy answer is available to that question. It all depends on certain factors of which some cannot be quantified.

The Basics: to start, you may have the alternative of using the standard mileage method. Certain restrictions are placed on the use of this technique. However, if you have the option of using the standard mileage method, it makes recordkeeping simple. It will not be necessary to keep gas receipts, repair bills and so on. All you need to do is to simply sum your business miles for the year and apply the IRS mileage rate in effect. This is 55 cents in 2008 but will drop to 50 cents in 2010. Whichever method you opt for, the details of your mileage has to be recorded still; date, business destination, mileage as well as business purpose.

The mileage rate is not applicable if you use the car (car here includes vans and light trucks) for hire – e.g. a taxi; use up to five or more cars at the same time – e.g. fleet operations; claimed a depreciation deduction for the car employing a method besides straight line – e.g. MACRS; claimed the special depreciation allowance on the car; make claim of a section 179 deduction on the car; claimed actual car expenses for a car you leased, after 1997; or if you are you received a qualified reimbursement as a rural mail carrier.

What Deductions are Applicable with the Standard Mileage Method?
The 55 cents per mile was mentioned for 2009. This comprises of most of the cost of operating the car; repairs, depreciation, oil, gas and others. Also, you may deduct parking expenses (excluding fees to park your car at your place of work), tolls. An employee is not allowed to deduct any interest paid on car loan; though, you may deduct that portion of the interest that shows the use of the car for business if you are self-employed. For instance, depending on the miles driven in the course of the year, your car was used for your sole proprietorship 70 percent of the time. 70 percent of the interest can be deducted for the year, on your Schedule C. you can deduct personal property taxes on Schedule A of your Form 1040 if you itemize, not regarding if or not the car was used for business. Perhaps you transact business as a sole proprietorship and made use of your car in the running of your business, you may deduct the business portion of personal property taxes on Schedule C, and the rest portion on Schedule A.


Actual Expense Technique or Method
All the expenses incurred in operating the vehicle can be deducted when using the actual expense method; this includes repairs, gas, depreciation, insurance, lease payments and so on. However, it is needful to maintain records as well as keep the receipts of all expenses. If you lose the receipts for the gas expenses in April, the Internal Revenue Service can object to the expenses if you are audited. Also, the IRS is highly likely to ask to ask for your car logs, expense documentation associated with all business vehicles. You are only allowed to deduct the portion of the expenses made for business use.