For most home-business owners, business use of their vehicles represents the greatest single source of legitimate tax deductions - especially when they learn how to use the IRS' Two-Business Location Rule to convert non-deductible commuting mileage into tax-deductible business mileage.
The average person who puts around 15,000 miles on their car annually, is sitting on a tax deduction worth more than $5,000! That converts to some $2,000 (+/-) extra CASH in their pocket per year.
BUT, this is August already. What if someone has had a home-based business all year, but they just NOW learn how to convert commuting, shopping trips and personal errands into tax-deductible business mileage? Have they lost the deductions for the first half of this year?
Good news! The answer is NO, they have NOT lost the deductions for January through July, because they can use the IRS-approved "statistical method" of documenting vehicle use. Here's how that works.
Following the specific steps described in Chapter VII and using the Vehicle Use Log provided in Appendix D of "It's How Much You KEEP, That Counts! Not how much you Make," a taxpayer can keep complete documentation of every time they use their vehicle for 90-CONSECUTIVE-DAYS, and then apply that business-use percentage to the total annual miles the car was driven - even retroactively to January 1, 2002!
For example, let's say you drive 4,000 miles in the next 90 days, and 85% of those miles were for business purposes (which is not difficult, if you follow the guidance provided in "It's How Much You KEEP."). Let's say your odometer reading on January 1 was 34,500. This coming December 31, you record that your odometer reads 49,000. That means you put a total of 14,500 miles on your car in 2002. If 85% was for business use (as documented during your "typical 90-day period"), you calculate that you put 12,325 tax-deductible business miles
on your car. Since you can claim 36.5 cents per business mile, your tax deduction comes out to $4,498.62.
And, what did you have to do in order to qualify for that $4,498 in tax deductions? Simply keep vehicle-use records for 90 days. Period. Do the math, and you'll see that you documented about $50 worth of tax deductions each of
those 90 days, just by filling in a simple log with the date, destination, purpose of the trip and mileage.
If you haven't been documenting the business use of your vehicle, start today, and you'll reap the rewards for the entire year.
There's a "Tax Tip You Can Bank On."
Ron Mueller author of "It's How Much You KEEP, That Counts! Not how much you Make."