Wednesday, August 4, 2010

Deduct Automobile Repairs On A Tax Return

Automobile repairs may be deductible if the car is used for business purposes.


Automobile repairs are only allowed to be deducted by individuals on their personal tax return, Form 1040, if the car is used for business purposes. The deduction is limited to the costs that are not reimbursed by the individual's employer as well as the percent of time the car is used for business purposes. Unreimbursed automobile repair expenses are subject to the IRS two percent limitation. This limitation only allows the portion of automobile repairs and other transportation, travel, meals and entertainment expenses that are greater than two percent of the individual's adjusted gross income to be deducted on Schedule A.


Instructions


1. Enter the vehicle information in Section A, lines 11 through 21, page 2 of Form 2106. This section determines the percent of time the car was used for business purposes during the year. Miles driven to commute to and from work are not included in the calculation of business related miles.


2. Decide whether you will be taking a tax deduction according to the standard mileage rate or the actual automobile expenses incurred during the year. If you opt to use the standard mileage rate, complete section B, page 2 of Form 2106 by multiplying the number of miles driven for work by the standard mileage rate indicated. The IRS sets the standard mileage rate annually. The 2010 and 2011 standard mileage rates are $0.50 and $0.51, respectively.


3. Choose to deduct actual automobile expenses instead of the standard mileage rate when the out of pocket expenses are greater than the deduction provided by the standard mileage rate calculation. Complete Section C, page 2 of Form 2106. Note that expenses such as repairs, gas, insurance and license plates are eligible to be deducted on line 23. If the car was leased a reduction of the lease payments is required. This reduction is based on the fair market value of the car as of the first day of the lease term and the year the lease began. For cars leased in 2008 or later that had a fair market vale of $18,500 or greater, a lease payment reduction is required.


4. Multiply line 26 by the percentage of business use as determined on line 14 of Form 2106 and enter the result on line 27. If you are claiming depreciation expense, enter the current year's depreciation on line 28. Current year depreciation can be determined by completing Section D, page 2 of Form 2106. Add lines 27 and 28 and enter the result on line 29 as well as line 1, page 1 of Form 2106.


5. Record current year expenses paid for parking fees, travel expenses, other business expenses on lines 2 through 4 on page 1, Column A of Form 2106. Record meal and entertainment expenses on page 1, Column B of Form 2106. Add lines 1 through 4 from Column A on line 6 and enter line 5, Column B on line 6, Column B.


6. Record employer reimbursements received during the year on line 7, Columns A and B, of Form 2106. Subtract line 7 from line 6 for Columns A and B and enter the result on line 8. If the result for Column A indicates that employer reimbursements were greater than the taxpayer's expenses, the taxpayer must report these payments as income on Form 1040, line 7. If the result for Column B is zero or less than zero, no deduction is available.


7. Determine the deductible auto and meal expenses on line 9, Columns A and B. Report the total on line 10 of Form 2106 and line 21 of Schedule A. The description "Form 2106 Expenses" should be included on line 21.


8. Calculate total job expenses and miscellaneous deductions on line 24 of Schedule A. Record the amount from Form 1040, line 38 on line 25 of Schedule A. Calculate the two percent IRS limitation on the deduction by multiplying line 25 by 0.02. Record the result on Schedule A, line 26. Subtract line 26 from line 24 and enter the result on line 27. In the event that line 24 is less than line 26, the taxpayer does not have any deduction available to him for job expenses and other miscellaneous deductions including automobile repairs.

Tags: Form 2106, standard mileage, mileage rate, standard mileage rate, page Form