Do you use your car for business driving or maintain an office in your home? In either situation, you may have a choice of methods for figuring your tax deduction.
CAR EXPENSES
When you use your car for both business and personal purposes, you have to keep track of your mileage so that your car expenses may be divided between the two purposes. Only the business portion is deductible. That much is a given. The choice involves whether to use the actual amounts you spend on gas, oil, repairs, insurance, etc., to figure your deduction or the IRS standard mileage rate. Usually, you will want to use actual expenses if it produces a larger deduction. But, if keeping receipts is a burden, the simpler standard mileage rate may be best. (Requirements apply.)
HOME OFFICE EXPENSES
There are strict requirements for claiming the home office deduction, but it can be a tax saver if you qualify for it. Assuming you do, you’ll have to decide between deducting actual expenses allocated to the home office (usually based on square footage) or using a simplified method (deducting $5 per square foot for up to 300 square feet of office space). Again, you will usually want to use the actual expense method if it produces a larger deduction. But, if you want to minimize recordkeeping and don’t want tax complications when you sell your home, you may lean toward the simplified method.*
* Capital gain attributable to depreciation of your home will be taxable. Unlike with the actual expense method, there is no depreciation claimed when using the simplified method.