Understanding The Rules For Business Vehicle Deductions
If you own a vehicle for business use or even use your personal car for job tasks, you may be eligible for certain tax deductions.
That part probably comes as no surprise, but it's not as simple as entering in the price of your car.
You must follow guidelines to determine what vehicle write off you qualify for.
This guide will walk you through how to benefit from vehicle tax deductions.
Business Use Versus Personal Use
If you only use your vehicle for business a portion of the time, you're only eligible to use deductions for the percentage of time it's in use for business.
If the vehicle is solely to operate the business, you can deduct its entire operation expenses within a few limitations.
Calculate to determine which is best out of the standard mileage rate or the actual car expenses.
Standard Mileage Rate
Standard mileage deductions use information about the vehicle use to determine your mileage allowance.
You'll only need to answer the number of miles you drove the vehicle for the year and the number of miles you drove it for business.
From there, you can use the cents per mile to calculate your mileage allowance.
The standard mileage rate is the simplest tax method, but you'll need to do your homework.
The IRS requires those using this type of deduction to start using it the first year the car is available for business.
You also won't qualify if you use more than five cars at the same time for business.
It's best to check IRS rules and seek advice from your tax professional.
Vehicle Expenses Eligible for Tax Deductions with Actual Car Expenses Method
With this method, use your records to calculate what it costs to maintain and operate the vehicle for business purposes.
Some vehicle expenses include gas, insurance, maintenance, lease payments, loan interest, and deprecation.
See the IRS rules for a full list of eligible tax write off for business vehicle expenses.
Differences Between Owned and Lease Business Vehicles
If you finance a vehicle for business use, you can't write off the car payments.
However, loan interest does qualify for tax deduction.
Alternatively, those with business leases do qualify to deduct payments if they use the actual expense method.
Leases also don't qualify for depreciation.
Understanding Depreciation for Vehicles
As a part of the business property, you'll need to use the depreciation method to write off a portion of the expenses for financed vehicles.
Just like with office equipment, housing or office property, depreciation takes wear and tear over time into account.
When you decide to sell the vehicle, your selling price will be minus the adjusted basis.
Whatever method you choose, it's important to be accurate and honest when filing your taxes.
The easiest way to do this is by having documentation to back up your tax deductions.
Keep good records of business vehicle expenses throughout the year.
That way it's easier for you and your accountant to write off vehicle expenses at tax time.