Which is better - deducting the standard mileage rate or actual expenses?
With the increasing cost of gas, it might be a good idea to revisit which tax deduction is the most beneficial - claiming 50 cents per business mile (55.5 cents starting July 1, 2011) or your actual vehicle expenses. Claiming the standard mileage rate is easier. All you have to do is keep track of your business miles and multiply them by the current rate. In addition to the standard mileage rate, you may also deduct the costs for parking and tolls. Plus, if you are self-employed, you can deduct the interest paid on your car loan.
Claiming actual expenses may result in a larger deduction, but requires a bit more diligence in your record keeping. First, keep all receipts for gasoline, oil, repairs, and tires. Also, track any amounts paid for licensing and registration, insurance, garage rental, leasing, parking, tolls, and rentals. Sales tax and luxury tax are not deductible, although the amounts you pay can be added to the cost of your car and recovered through depreciation.
Regardless of what method you choose, the expenses are limited to your business use. therefore, you must document the total miles and the business miles for the year to calculate the business-use percentage.