Dear truthsetsfree,
Before I address your question in detail, let me emphasize that I am
not an expert on taxation, and that none of what I have to say is an
adequate substitute for the advice of a professional tax preparer or
lawyer. What I will do is point you to documents published on the
official IRS website and paraphrase their contents.
Internal Revenue Service
http://www.irs.gov
Their top-level page for small-business and self-employment topics is
at the following address.
information for small businesses and the self-employed
http://www.irs.gov/businesses/small/index.html
This page includes a link to some informal tutorials, and a link to
the official guides you will need to read and the forms you will need
to fill out if you wish to file as a self-employed individual.
informal tutorials
http://www.irs.gov/businesses/small/article/0,,id=115045,00.html
Publications and Forms for the Self-Employed
http://www.irs.gov/businesses/small/article/0,,id=115044,00.html
According to the information supplied in these pages, you are
considered to be self-employed if you are exclusively in business for
yourself or if you operate a part-time business in addition to your
regular job. The IRS has a great deal to say about the difference
between self-employed individuals and independent contractors, but
this is only important if your business employs other people whose
salaries or contract fees you wish to deduct as a business expense. If
you are on your own, then the only thing that matters is whether you
carry out business or trade as defined by the IRS (consult the second
link below) at some time during the tax year.
"Who Is Self-Employed?"
http://www.irs.gov/businesses/small/article/0,,id=115041,00.html
Business Activities
http://www.irs.gov/businesses/small/article/0,,id=115042,00.html
Your chief concern is whether you can claim your car-repair expenses
as a cost of doing business. The general answer is that car repairs
are a valid deduction, but you may claim them as a business expense
only in proportion to your use of the car for business. This is what I
read in the IRS publication devoted to the subject.
Publication 463 (2003), Travel, Entertainment, Gift, and Car
http://www.irs.gov/publications/p463/index.html
An example given in this publication is the following.
"You are a sales representative for a clothing firm and drive your car
20,000 miles during the year: 12,000 miles for business and 8,000
miles for personal use. You can claim only 60% (12,000 ÷ 20,000) of
the cost of operating your car as a business expense."
I urge you to pay special attention to the sections on car expenses and records.
Transportation: Car Expenses
http://www.irs.gov/publications/p463/ch04.html#d0e2953
Recordkeeping: How To Prove Expenses
http://www.irs.gov/publications/p463/ch05.html#d0e6173
There's a lot of material to read, but I gleaned two essential facts.
First, you must decide whether it is more advantageous for you to
claim the standard mileage rate or to calculate your actual car
expenses. Second, if you choose to deduct actual car expenses, you
must maintain an accurate record of all your expenses, keeping all
receipts and noting all dates.
The standard mileage rate is the simpler of the two options, since it
requires only that you keep track of the number of miles you've
traveled on business. You then multiply this number by 37.5 cents, and
that's the total you claim for that vehicle.
2004 Standard Mileage Rates Set
http://www.irs.gov/newsroom/article/0,,id=114320,00.html
If you opt for this method, you may not deduct any actual expenses,
and you must use the standard mileage rate in the first year that the
car is available for use in your business. A number of other
restrictions apply, so read the publication carefully. If you're
allowed to use the standard mileage rate in your situation, and if it
would lead to a larger deduction than claiming actual expenses, this
is the way to go.
As an alternative to the standard mileage rate, you can keep records
of all your actual expenses, including such things as gas, insurance,
depreciation, and repairs. From the total cost, you may then claim an
amount proportional to the number of car miles that were devoted to
business use. You should use this method if it saves you more money
than the standard mileage rate and if you're prepared to do all the
recordkeeping.
Thank you for letting me work on your interesting question. If you
find my answer incomplete or inaccurate in any way, please post a
clarification request so that I have a chance to meet your needs
before you assign a rating.
Cheers,
leapinglizard |
