Get Savvy on Transportation

Vehicle deductions can be particularly tricky. Many owners wind up driving blind, say experts, unaware of how much money they're losing through poor tax planning. Not so Dennis Verkest, 55, the owner of A Chimney Sweep & More, based in Valrico, Fla. Because Florida homeowners don't use their fireplaces much, Verkest says he travels great distances to service the clients he has. He logs more than 15,000 miles a year in his Ford F-150 pickup. His solo operation will collect roughly $100,000 in revenues this year and is profitable.

Verkest arrives for jobs dressed all in black and sporting a traditional chimney sweep's top hat. "I don't wear tails," he says. "It's just too hot."

Because his pickup is fairly new (2004 model year), conventional wisdom holds that Verkest should take the normal deductions. For a car or light truck, you get a write-off that changes from $3,060 in year one to $1,775 in the fourth year and onward until you've depreciated the purchase price. You can also deduct the cost of insurance, repairs, and - critically - gasoline.

But Verkest chose option two: standard mileage. You can't depreciate the cost of the car or write-off gas. Instead, you take a simple deduction based on how many miles you drive. For 2008 it's 50.5 cents a mile, up from 48.5 cents in 2007. By choosing the mileage rate, his CPA figures, Verkest will be able to increase his write-off by as much as $750 over the normal deduction. "I'll do anything to keep more money in my pocket," Verkest says.

By the way, you can also take a Section 179 deduction when you buy certain new or used vehicles. The write-off is $25,000 for a truck heavier than 6,000 pounds - a Hummer or Range Rover, say. At the same time you get to take accelerated depreciation on the purchase price starting at 20% the first year and then at varying rates thereafter.

Bottom line: If you have a newer car or don't drive so many miles, the normal deductions might be the way to go. If you drive a lot, standard mileage may be the ticket. In many cases you can switch from one kind of deduction to another. Switching can be wise as a car gets older and is due a smaller normal deduction.

"Do the math each year," urges Barbara Weltman, author of J.K. Lasser's Small Business Taxes. "You can be surprised to find that you're losing money by taking the wrong vehicle deduction." Find the right one, and you've earned yourself a juicy tax cut.  

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