Can I deduct car expenses if I am an independent contractor?

This answer was provided by Mark Misselbeck, Levine Katz Nannis & Solomon PC, Needham.

Q: I contract myself out for QA oversight at a Fabrication shop 71 miles away. I make the commute daily. This job assignment will be for less than a year. I bought a new vehicle to assure I make it to work everyday. May I deduct mileage, depreciation, or any other expenses? The company I represent does not reimburse me for any expenses. --Scott, Newburyport

A: You state that you have contracted out for this assignment, but from the information provided, it sounds as if you may be an employee. If that is the case, no deductions would be allowed for travel to your place of employment - this question should be looked at with the company, provided it does not cost you the position.

If you are truly a contract employee, you will be able to deduct your travel costs for a temporary assignment. Report your income on a Sch. C and claim the automobile costs against this. You will have the choice of claiming the actual costs of the vehicle (gas, oil, tires, repairs, insurance, interest, taxes and depreciation - Form 4562 will be needed), multiplied by the business mileage divided by the total mileage for the year to arrive at the allowable deduction OR you may claim the standard mileage rate of $ .36/mi. (for 2003) multiplied by the business mileage as the allowable deduction. You should have some documentation showing the business mileage traveled in the vehicle, in case the IRS chooses to challenge you. You will also need to answer several questions regarding the business use of the vehicle, either on Form 4562 (if actual expenses are claimed) or on page 2 of Sch. C (if the standard mileage rate is claimed). The standard mileage rate for 2004 is $ .375/mi. Your net income from Sch. C will also need to be reported on Sch. SE to calculate your Social Security contributions.