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J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line by Barbara Weltman

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Actual Expense Method

The actual expense method allows you to deduct all of your out-of-pocket costs for operating your car for business, plus an allowance for depreciation if you own the car. Actual expenses include:

Depreciation Licenses Tires
Garage rent Loan interest Tolls
Gas Oil Towing
Insurance Parking fees Vehicle registration fees
Lease fees Repairs

For individuals, whether interest on a car loan is deductible depends on employment status. If you are an employee who uses a car for business, you cannot deduct interest on a car loan; the interest is treated as nondeductible personal interest. However, if you are self-employed, the interest may be treated as business interest. For corporations, interest on a car loan is fully deductible.

If you pay personal property tax on a car used for business, the tax is deductible by an employee only as an itemized deduction. Personal property tax is not grouped with other car expenses. Instead, it is listed on an individual’s Schedule A as a personal property tax.

If your car is damaged, destroyed, or stolen, the part of the loss not covered by insurance may be deductible. If the car was used entirely for business, the loss is treated as a fully deductible casualty or theft loss. If it was used partly for personal purposes, the loss may be treated as a casualty or theft loss, but the portion of the loss allocated to personal purposes is subject to certain limitations. See Chapter 17 for a discussion of casualty and theft ...

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