The Do's and Don't's of Writing Off Vehicle Expenses on Your Taxes
If you're a small business owner, then you know the importance of accounting for every penny. One way to save on your tax bill is by writing off your vehicle as a business expense. But it's not always so easy to write off your car. You must either prove that the vehicle is qualified or you must have documentation of miles driven, if you use the vehicle for both business and personal use.
To figure out how much you can write off on your taxes, use the standard mileage rate or the actual expenses method.
The benefits of writing off your vehicle as a business expense
There are many benefits to writing off your vehicle as a business expense. For instance, if you are in the self-employed category, then you can deduct the cost of running your car, like gas, maintenance, and insurance. You can also deduct the cost of parking and tolls while using your vehicle for business. If you use the actual expenses method, another bonus that you can take advantage of is depreciation on that vehicle.
If your vehicle is used for both business and personal purposes, then you can only deduct the percentage of use that applies to business.
To figure out the business use percentage, simply divide the total number of business miles driven throughout the year by the total amount of miles driven throughout the year.
An easy way to track your mileage is using apps like MileIQ, or writing down the mileage on your odometer on January 1st and December 31st every year, while maintaining record of business trips taken throughout the year.
Standard Mileage Rate
To use the standard mileage, simply multiply the number of business miles driven throughout the year by the standard mileage rate. For the 2021 tax year, the standard mileage rate is $0.56 per mile.
Actual Expenses Method
People who use their car primarily for work will likely use the actual expense method. To calculate this, simply record the costs of:
Gas and oil
Parking garage rent
Washing and polishing
Repairs and maintenance
You will then multiply the total costs of owning and operating your car by the business use percentage, or 100% if the vehicle is used in the course of your business 100% of the time.
Do's and don'ts of writing off vehicles on your taxes
Claim a vehicle that is used primarily for personal use and you just want a tax break. This deduction is heavily scrutinized by the IRS
Claim any other type of vehicle as a qualified vehicle for your tax return.
Deduct commuting miles to work
Claim a vehicle that does not have written proof of its use for business purposes. [such as mileage logs and gas receipts]
Keep a mileage log for your vehicle from January to December (include date, miles traveled, destination, trip's purpose)
Using a car for business purposes can be expensive, but there are many benefits to writing off your vehicle as a business expense. For instance, if you're in the self-employed category, you can deduct the business use of your vehicle as an added write off.
If you're not sure how to write off your vehicle as a business expense, make sure to consult your accountant or tax specialist to get everything locked down and filed correctly.