The first step in the process of deducting the business usage of your car is for you to keep a contemporaneous mileage log, every year. This log should list business miles and personal miles separately. By doing this, you are able to identify the following: (1) total business miles and (2) the percentage of total miles driven that represent business usage for any given tax year.

There are two IRS approved methods for deducting the business usage of your car: (1) Standard Mileage or (2) Actual Expenses. Under the standard mileage method, you multiply your business miles times 44.5 cents. The resulting dollar amount represents the cost of using your car for business purposes. Alternatively, you can use the actual expenses method; under this method, you multiply the actual cost of purchasing, operating and maintaining your car times the percentage of your total miles driven that represent business usage.

Using the actual expenses method, the purchase cost of your vehicle that represents business usage can be deducted (over the allowed number of years) using a combination of regular depreciation, special depreciation and Section "179". Other actual expenses, such as gas, insurance and repairs, etc., are determined by multiplying their actual cost by the percentage of total miles that were for business.

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