Using Your Vehicle for Business to Save Money
Whether you are a business owner, self-employed, or an employee, if you use your vehicle for any business use you will be able to deduct some expenses and reduce the amount of income tax you’ll have to pay. If you put a lot of business miles on a vehicle, you should learn about the benefits of leasing vs buying, how depreciation works, and which method of mileage deductions will be best for you. All of these have tax implications so talk to your accountant about them.
If you have a dedicated business vehicle then you can deduct all expenses, included what you paid for it, as depreciation. If the vehicle is used for both personal and business, then only the deductions allowed are what it cost to use for just business.
Choice of how to deduct expenses
There are 2 ways to deduct expenses. You have to decide when you file which of the two ways will have the larger deduction. One method is to claim all actual expenses. This means you must keep all receipts and meticulous records in order to substantiate the expenses. The second method is by keeping track of the actual mileage used for business and use the standard mileage rate. You cannot do both.
Standard mileage rate
If you’re going to start using a car you already own for business, you’ll have to use the standard mileage rates for the first year. After that you can choose either that or actual expenses. If you use a leased vehicle, as long as it is under lease you can only use the mileage rate. For economy vehicles or ones that aren’t costly to operate, using the standard rate will probably give a larger deduction.
For your personal vehicle, by keeping track of the mileage at the beginning and the end of the year, figure what percentage it is used for business based on the actual business miles. You can deduct that percent of all the expenses including gas, oil, maintenance and repairs, tires, loan interest, lease payments, insurance, depreciation, and registration and licensing fees. If you have a vehicle that high operating costs, using actual costs will likely prove the most beneficial.
For a vehicle owned by the business that is only used for business purposes, all expenses are deductible.
Keep good records
There are some things the IRS takes seriously when it comes to business deductions, and expenses for vehicles is one of them. Keep a mileage log and note the mileage at the beginning of the year, as well as at the end.
Keep a log of all business miles, dates, purpose, etc, as well as all other vehicle expenses you plan to write off. Even if you plan to take the standard rate deduction, you still need these records.
Do not deduct expenses for commuting to work
Driving to your place of business from home is not allowed as a business expense. Even if you have advertising on the vehicle, or talk to clients or customers on the phone while you drive, these miles are not deductible. However, if you travel from home to a different business location other than your normal business location, that is a cost that can be deducted. Plan your day so that by making a business-related stop on the way to or from home converts that segment of your drive to business miles.
Jeffrey Ressler owns a boutique, full-service accounting firm in Boca Raton, Florida that provides individualized financial services, expert tax preparation, tax planning for individuals and companies, and finding solutions to IRS problems.