You may deduct your car, van, pickup or panel truck when used for business purposes using either actual expenses (also known as actuals) or the standard mileage rate. When you use actuals, you can deduct the business portion of actual car expenses you incur, such as the cost of the car, gas and oil, insurance, licenses, parking fees, registration fees, repairs, tires, tolls and even garage rent. The deductible portion of these actual expenses is calculated by prorating these expenses between business and personal usage. Note: The cost of the car is deducted by calculating an annual allowable depreciation dollar amount and then prorating this depreciation amount between business and personal use. The maximum dollar amount of deductible depreciation expense is limited to $7,660 in the year of acquisition ($3,660 if the 30 percent special depreciation is not claimed), $4,900 in year two, $2,950 in year three and $1,775 in year four and thereafter.
Under the standard mileage rate for 2003, you can deduct 36 cents per business mile (down from 36.5 cents per mile in 2002). Note: The depreciation deduction is built into this standard rate, so don't depreciate your car when using the standard mileage rate. To determine which option is best (and allowed) for your business, talk to your accountant.
Source: "Take Advantage of Car-Related Tax Deductions"