Good news. This year, we’ve been granted a 3-day reprieve on our taxes. Since Washington, D.C., will be celebrating Emancipation Day on April 15, the tax deadline’s been moved forward one business day. And because the 15th happens to fall on a Friday, we’ll actually have until Monday, April 18, to drag our feet, er … file our taxes.
Whether you’re a DIY master or a regular customer at your local accounting firm, chances are you want to get the most out of your tax returns. IRS regulations can be complicated, however, and it’s not always clear what you can and can’t deduct.
To help you figure it all out, we spoke with Gail Rosen, a certified public accountant with more than 30 years of experience. Here are the top 4 car-related deductions:
1. Tax deductions for business use
If you use your vehicle for business purposes, charity, or medical reasons, you can deduct your driving-related expenses using either of these methods:
- Standard mileage rate. To compute your deductions using 2010’s standard mileage rate, multiply the number of business miles traveled by 50 cents (charity is 14 cents and medical is 16.5 cents) per mile. Your car insurance expenses are factored into the standard mileage rate. Keep in mind that if you deduct using the standard mileage rate, you can’t deduct your vehicle expenses — including depreciation, lease payments, gas, maintenance costs, insurance, or registration fees — for that year.
- Actual car expenses. Unlike the standard mileage rate, this method of deduction takes into account all of the expenses associated with your car (gas, car insurance, car payments, repairs, etc.). In this method, you add up all of your vehicle expenses related to business use and multiply that number by the business percentage (business miles for the year/total miles for the year).
The tax regulations on this can be tricky, so be sure to visit the IRS website’s section on car expenses or your local tax professional for more information.
2. Tax deductions for donating a car
If you donated a car to a qualified charitable organization last year, you could be eligible for a tax deduction.
If the donated car is worth more than $500, the deduction will be the amount for which the charity actually sells the car without materially improving it. Your tax bracket will also determine how much you get back. For example, if you donate a car and it sells for $4,000, your deduction will be determined by multiplying that amount by your tax bracket (25 percent, 30 percent, etc.).
Some quick tips to keep in mind:
- Check the value of your vehicle before donating
- Make sure that the charity is eligible to receive tax-deductible donations
- Be sure to itemize deductions on Schedule A of Form 1040
3. Tax credit for hybrids
Owning a hybrid provides many benefits, one of which is a tax credit from Uncle Sam. If you bought (or put into use) a new, qualified hybrid on or after January 1, 2006, you could receive up to $3,400 in income tax credit from the government. The dollar amount varies depending on the date of purchase as well as the make, model, and year of your car.
To qualify, these requirements must be met:
- The car must be put to use after December 31, 2005
- The car must be purchased on or before December 31, 2010
- You must be the original buyer of a new hybrid (the credit does not apply to used hybrid vehicles)
- The car must be driven predominantly in the U.S.
The tax credit for hybrids expired on December 31, 2010, however, so this tax season will be your last chance to claim the credit.
4. Tax credit for EVs
2010 was the year of the EV. Owners of EVs purchased on or after 2010 qualify for a federal income tax credit up to $7,500. The credit amount will vary depending on the capacity of the battery in the vehicle.
To qualify, these requirements must be met:
- The vehicle must be new
- The vehicle has to be certifiably electric
- The vehicle was acquired for use (not for resale)
- The vehicle must be placed into use during or after 2010
- The vehicle must be used predominantly in the U.S.
If you’ve already filed your taxes this year, then bravo. If not, you have until April 18 to make the most of 2010 and qualify for as many deductions as you can.
Good luck and (many) happy returns.
Search for eligible charities
Get the guide to vehicle donation
Get the scoop on the hybrid tax credit
Get the scoop on the EV tax credit