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by Debby Dyess

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"The best thing about working from home is that I can deduct so much at tax time," a friend of mine gushed as she tried to convince me to follow her into the wonderful world of MLM. "I can deduct every CENT of my car expenses, and a percentage of my house expenses, too!"

I hesitated. "All of your car expenses? That doesn't seem right "

She nodded. "I have my name, business and phone number painted on my car door now, so it's all advertising."

"Sounds too good to be true," I mused.

Turns out I was right. My friend couldn't deduct every cent of her car expenses from her taxes, even with the advertising on the side door, but she could deduct some of them. There are conditions that have to be met in order to use business-auto deductions from your tax bill. First of all, there has to be a direct ad provable connection between your business and the use of your auto. Simply driving the car to and from work doesn't count. If, however, you use your car to drive around town visiting clients, you qualify to take the deduction. If you work from a home office (like my friend in the MLM), any running for the business trips to the post office to mail product or to the office supply store for printer paper, driving to a business lunch will all count as legitimist vehicular business expenses.

If you believe you qualify for vehicle deductions on your taxes, know that there are two ways to calculating your vehicle deduction. You may choose to base your deductions on your mileage or on actual costs.

When you use the standard mileage rate (the easiest to figure), you'll figure the number of miles driven for business purposes ONLY and multiply it by the mileage rate determined each year by the IRS. For 2008, this rate is 50.5 per mile. So if, for example, you determine you've used your car for business a total of 1,596 miles, multiply 1,596 x 50.5 to find your deduction. The standard mileage rate cannot be used if you use your car for hire (a limousine or taxicab), or you have five or more vehicles in use at the same time for the same business. You may only use this method of figuring your deduction if you used it in the first year of claiming car expenses. If you bought the car for business use last year, but failed to claim the standard mileage rate, you cannot claim it this year.

Your other option is to deduct your actual car expenses. This is a head-to-toe deduction of everything related to the car, from depreciation to fuel, to your loan payments and repairs. Not everything is a claimable expense, of course. Tickets, the sales tax on the car or interest on the loan are not deductible. To figure the depreciation you use the depreciation tables provided by the IRS.

It's exciting, and somewhat of a relief, to know that something as vital to our business as our vehicle, and something that eats up so much of our spend able cash, can be used as a deduction. For more information, see IRS Publication 946.

Learn more about this author, Debby Dyess.

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