Maximum Tax Relief from Soaring Gas Prices

By Salim Omar

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NOVEMBER 2005 - Businesses can mitigate the impact of soaring gas prices in the aftermath of hurricanes Katrina and Rita by taking the maximum allowable car deductions on 2005 tax returns.

According to the IRC, a taxpayer who uses his car for business or employment purposes can deduct car expenses, including upkeep, repair, and gas, for the operation of his business or employment.

Qualifying expenses include:

  • Traveling from one location to another when the taxpayer has one or more regular places of business;
  • Visiting clients or customers;
  • Travel and entertainment expenses; and
  • Traveling to a business meeting away from the regular workplace.

Calculating deductible expenses is generally done by one of two methods:

  • Standard mileage rate. For 2005, the IRS set this at 40.5 cents per mile, but in September the IRS increased the rate to 48.5 cents a mile for all business miles driven between September 1 and December 31, 2005.
  • Actual car expenses. This includes gas and oil; cleaning, inside and out; waxing; insurance; depreciation; and repairs and maintenance.

Because of the current price of gasoline, actual expenses may exceed the standard mileage rate, depending on the vehicle and distances driven and how much gas is purchased. Taxpayers should calculate each and determine which is most advantageous.

Regardless of which deductible is used, taxpayers should keep an accurate written log of travel activities, costs, and expenses, and purchase gas and pay for repairs with a check or credit card that provides a document trail to describe and substantiate the valid purposes for travel. The taxpayer should save all receipts and properly itemize the expenses and deductions carefully on tax forms.


Salim Omar, a tax and financial educator in Monmouth County, N.J., is the author of Straight Talk About Small Business Success in New Jersey. He can be reached at salim@omargroupcpa.com or www.omargroupcpa.com.

 

 

 

 

 

 

 

 

 

 

 

 


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