If you are self-employed and use your vehicle for business purposes, you have two options for taking a deduction for use of that vehicle: Option #1 is known as the Actual Expense Method. You write off the actual expenses such as gasoline, repairs, maintenance, insurance and depreciation. Option #2 is called the Mileage Rate Method, in which your deduction is the IRS-approved standard mileage rate times the number of business miles driven during the year. The purpose of this article is to provide an update on Option #2, because the amount of this standard mileage rate usually changes on January 1 of each year, and so you need to know the new rate for 2011 in order to properly calculate your deduction. Effective January 1, 2011, the mileage rate is 51 cents per mile. Then, on July 1, 2011, the rate changed (again) to 55.5 cents per mile. So you have two different rates for the 2011 tax year. To properly calculate your vehicle deduction, you should use both rates. Here's an example to help clarify. Let's assume you drove your car 8,000 for business purposes during the year. You also need to know how many business miles you drove from January 1 to June 30 and from July 1 to December 31. If you drove 5,000 miles during the first six months and 3,000 miles during the last six months, your vehicle deduction would be calculated as follows: (5,000 x.51) plus (3,000 x.555), or $2,550 plus $1,665, or a total of $4,215 for the year. Here's some more good news: there are a few car-related actual expenses that you get to deduct even if you use the Mileage Rate Method. Here's an overview of those: 1. Parking fees and tolls that you paid when driving for a business purpose. 2. Interest on a vehicle loan. If you drove the car less than 100% for business purposes, you must apply the business use percentage to the total loan interest paid during the year. The business use percentage is determined by dividing the business miles by the total miles. So if you drove your car 75% for business, and your vehicle loan interest was $2,000, you would be entitled to a $1,500 deduction. 3. State and local taxes. Many states levy a tax on your vehicle. In a manner similar to loan interest, you get to deduct this tax to the extent the vehicle was used for business. So if the business use was less than 100%, do the same allocation calculation described above.