Mercedes is an employee of MWH company and drives her car 12,000 miles a year for business and 3,000 miles a year for commuting and personal use.She is not reimbursed by her employer.She wants to claim the largest tax deduction possible for business use of her car,before any limitations on itemized deductions.Her total auto expenses for 2016 are as follows:

Mercedes's total 2016 deduction for automobile use is:

Question

Mercedes is an employee of MWH company and drives her car 12,000 miles a year for business and 3,000 miles a year for commuting and personal use.She is not reimbursed by her employer.She wants to claim the largest tax deduction possible for business use of her car,before any limitations on itemized deductions.Her total auto expenses for 2016 are as follows:
​

Mercedes's total 2016 deduction for automobile use is:

Quizplus · Accepted Answer

Since Mercedes wants to claim the largest tax deduction possible for business use of her car, she needs to calculate her deduction using both the standard mileage rate and actual expenses method and choose the one that gives her the larger deduction.

Using the standard mileage rate method: 
- Mercedes drove 12,000 miles for business at a rate of $0.54 per mile, so her deduction is 12,000 x $0.54 = $6,480 
- Mercedes drove 3,000 miles for commuting and personal use, which is not deductible

Total deduction using standard mileage rate method: $6,480

Using the actual expenses method: 
- Mercedes's total auto expenses for the year were $9,145 
- To calculate the portion that is deductible for business use, she needs to multiply her total expenses by the percentage of miles driven for business, which is 12,000 / 15,000 = 80%
- Her deductible expenses using actual expenses method are therefore $9,145 x 80% = $7,316

Total deduction using actual expenses method: $7,316

Since the actual expenses method gives her a larger deduction, Mercedes should choose this method. 
Therefore, her total 2016 deduction for automobile use is $7,316.

The closest answer choice is B) $6,818, but this is not the correct answer.

Mercedes Is an Employee of MWH Company and Drives Her