Business Use of a Car

If you use your car, van, or some other type of vehicle in your business, you are entitled to certain tax deductions for expenses incurred in connection with the vehicles.

If a vehicle is used exclusively for business purposes, you may generally deduct the full cost of operating the vehicle. If you use a vehicle for business on a part-time basis, you will have to allocate your expenses based on your business and personal use.

But what, exactly, is "business use of a car?" Generally, the IRS classifies all car usage into three categories: business, commuting, and personal. "Business use" generally means travel between two business destinations, one of which may include your regular place of business. Typical travel expenses that are deductible include expenses for:

• travel from one job to another
• travel from one customer or client to another
• travel from your office or business location in order to perform business tasks, such as to pick up supplies and inventory, to check your business post office box, or to make a bank deposit

In addition, if you have a regular place of business, the cost of traveling between your home and a temporary work site that is not the regular place of business is deductible, regardless of the distance traveled. A temporary work site is a place where an individual is realistically expected to perform, and does perform, services for less than a year.

Also, if you do not have a regular place of business and you travel outside of the metropolitan area in which you work to a temporary work site, you are allowed a deduction for your travel costs. Travel within your metropolitan area is not deductible.

Commuting expenses. Vehicle expenses incurred in commuting between your home and your main or regular place of business are not deductible expenses. This is true even if you have an advertising display on your car, or you use the commute to listen to business books on tape or to phone your clients.

However, remember that costs of traveling between your home and a business location that is not your regular place of business is deductible. You can take advantage of this rule by planning your day so that you make a business related-stop on the way to work and on the way home, thereby converting a portion of your otherwise nondeductible commute into deductible business travel!

• If you operate out of a home office, special rules apply.
• If you must transport tools and materials, and as a result you have additional costs, you may be able to deduct those additional expenses.
• Keeping records of business usage is essential if you want to claim a deduction.