The details for deducting business vehicle expenses can be found in IRS Publication 463. Using most popular tax software programs, a worksheet is used to feed the deductible cost into the Schedule C vehicle expense line. This discussion is a general overview, focused on self-employed individuals that own or have financing on a car that they use in their business, what is deductible, and how to go about figuring the deduction.
Commuting miles and parking are Not Deductible. If you are deployed from a main office, that you report to regularly, you may deduct mileage from the office to the first job location, second job location, etc. If you have no regular office, but you typically work in a metropolitan area, only outside that metropolitan area is deductible. If you have no regular work area, and do not have a qualifying home office, travelling from home to your first stop, and from the last stop to your home is not deductible.
The beauty of qualifying a home office as a principal place of business, is that there are no commuting miles to worry about.
There are two methods used to deduct vehicle expenses, the Standard Mileage Rate and the Actual Expense method.
In order to use the Standard Mileage Rate method, you must have used the standard mileage rate the first year that you used your vehicle for business purposes. See our website for current and historical mileage rates. Expenses that are included in the standard mileage rate consist of depreciation, lease payments, gas and oil, repairs and maintenance, insurance, and the state portion of your registration fees or the cost of your plate. You cannot deduct these expenses in addition to the standard mileage rate. The costs you can take in addition to the rate include business related parking and tolls. You may also take the property tax assessed based on the value of the vehicle, and any finance charges, which are allocated to the business portion of the vehicle, based on the ratio of business mileage to total mileage.
If you use the Actual Vehicle Expense, the process is as it suggests. You track actual expenses for the vehicle, and do not take a standard mileage rate. You record and keep receipts for gas, oil, repairs, maintenance, lease payments, insurance, property tax, finance charges, business parking and tolls, and calculate depreciation.
You should be aware that there are special rules for cars used less than 50% for business, the handling of lease payments, and business vehicles traded in on other vehicles. Please see IRS Publication 463, call us, or a tax professional, if any of these situations apply to you.
In order to document your business and personal use, you need to take odometer readings at the beginning or end of each year. Remember, some costs are allocated based on the ratio of your business miles to total miles, so just knowing your business miles is not sufficient. You need to keep a daily record of your mileage, using a mileage log, or some other means, that will record the use of your vehicle on an ongoing basis with the details of each trip.
Maximize your deductible miles by incorporating business trips to the PO, Bank, etc. into grocery shopping and other personal trips. As long as you document the mileage and business destination, and show the personal miles separately from the business portion of those miles, it is totally legitimate.
I get asked a lot: So, which method do I use? You will need to keep a mileage log, whichever method you use. If you bought a new car, or have several repair bills during the year, actual costs may be better. Your best bet is to figure it both ways.
Feel free to call Seacoast Accountability at (603) 834-1271, or email us at [email protected] , if you have questions about deducting vehicle expenses. There are also deductions available for employees that use their car for business purposes, and several other specifics not covered in this article.
Legal Warning: The information in this blog is as accurate as I can make it. Consult me or your tax professional before using anything posted here on your tax return. Your circumstances may be different than those assumed in the postings. Please see my disclaimer.
Disclaimer: I desire to present only accurate information on this blog. However, I do not guarantee the accuracy or timeliness of the information. The information on this blog is subject to change without notice. I do not make any warranty, expressed or implied, or assume any liability or responsibility for the accuracy, completeness, or usefulness of the documents or information available on this blog. Any reference to a product, service, publication or web site does not imply an endorsement of that product, service, publication, or web site. If you have any questions or comments about any information provided on this blog, please email me at [email protected].
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