Operating Expense: Deducting Vehicle Costs

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Most eBay business owners do some driving for business, whether to pick up supplies, acquire inventory, go to the post office, or, other tasks. If you’re one of them, you have two methods to choose from in calculating your vehicle deduction — the standard mileage rate or the actual expense method.

  • Standard mileage rate. Using the standard mileage rate, you can claim a set deduction for every mile driven on eBay business. For 2014, the rate is 56 cents per mile (the current rate can also be found at the IRS website). Certain additional expenses, including parking fees and tolls, can also be deducted. However, the cost of repairs, maintenance, gas, insurance, or other costs of operating your car cannot be deducted, because these costs are already calculated into the standard rate. You can use the standard rate only for a car that you own. If you don’t use the standard rate in the first year you drive your car for business, you will not be able to use it for that car, ever.

  • Actual expense method. Using the actual expense method, you can deduct all of the costs related to business use of your car, including interest payments, insurance, license fees, oil, gas, and repairs. You can also depreciate the car, which means you take a deduction each year to reflect the car’s declining value. If you use the car for personal reasons, you can deduct only a pro rata portion of your expenses. Using the actual expense method is much more time-consuming than using the standard mileage rate. However, if you have an expensive car, the depreciation rate and possibly higher operating costs could result in a hefty deduction, so it might be worth the extra recordkeeping.

Whatever method you use, you must keep careful records. Because the IRS believes that taxpayers often overstate how much they use their cars for business, it has instituted some special rules for vehicle deductions. For instance, you must carefully track your business and personal mileage. The easiest way to do so is to keep a log in your car and record the odometer reading at the beginning and end of every business-related drive, as well as the readings at the beginning and end of every year. If using the actual expense method, you’ll also need to keep records of all vehicle expenses for that tax year.

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