If you bought a new car last year or used a car for business, don't miss the tax breaks you have coming. Writing off your car for work can really slash your taxes, especially if you are self-employed, and there are a few new deductions and credits on your '09 return.
The most widespread tax advantage -enacted in the economic stimulus law -lets people who bought a new car after Feb. 16, 2009 and before the end of last year deduct state sales or excise taxes on that purchase. There are, of course, restrictions on exactly who can qualify; you can find the rules in Ray Martin's tip: Don't Miss New Tax Forms.
If you bought certain hybrid vehicles last year, you can also get a tax credit-directly reducing your tax bill, not just your taxable income. Congress directed that credits would expire for a car company once it had sold 60,000 hybrids, a milestone long passed by Toyota and Honda. But if, for instance, you bought a Nissan Altima hybrid in 2009, claim a $2,350 tax credit. To do this, file form 8910. A full list of hybrid credits shows you the 2009 status by auto maker. For 2010 tax returns, credits continue on the Nissan and on all hybrids from General Motors' Chevrolet and GMC divisions as well as two Mercedes-Benz models.
While these tax credits are temporary, deducting the business use of your car is a staple of tax law. Even an employee reimbursed for travel expenses may still qualify for deductions. You may be able to drive home auto deductions in one of two ways:
Take the standard IRS mileage rate. For 2009, it's 55 cents per mile. You'll need a log of your miles driven and clients seen or other business-related stops, but keeping most receipts is not necessary. Even if you take the standard rate, the IRS allows additional deductions for business-related parking fees and tolls. You do need to keep those receipts.
Track actual expenses. If you want to go this route to get a bigger tax break, be sure you've kept thorough records and receipts for gas, maintenance, insurance, any interest on a car loan and what you paid for the car (so you can claim an allowance for depreciation).
If you use your car for business and pleasure, you must keep track of which trips are truly for business, whichever deduction method you use.
Traveling on business for a company, instead of for your own business, makes deductions more complicated. If you spend more for car costs than your company pays, the excess can count as unreimbursed business expenses. But this category plus other miscellaneous travel expenses, such as traveling to a temporary assignment away from home, must add up to more than 2 percent of your gross income and then only the amount over the 2 percent threshhold is deductible.