If done properly, yes! You can most certainly write off a car for business.
If you didn’t already know this, the IRS sucks!
The average small business owner can expect to pay about 19% in taxes. That’s just your business and doesn’t even include your personal income taxes.
Uncle Sam is greedy and will tax everything from your groceries to your property. And while we can’t save you from paying a sales tax on your groceries, we can teach you how to slap his hand away when it comes to your business.
One of those ways is to deduct your vehicle expenses for business use.
Key phrase here is “business use.”
Now, don’t get too excited yet. The IRS has some very clear (and some not-so-clear) guidelines on what can be used as a business deduction.
Here’s what you need to know.
Keep Good Records
We say this all the time. Always keep good records in case of an audit. When it comes to business deductions, the first rule of thumb is to ask yourself, “Is this expense somehow related to my business?”
If you are like most small business owners, you probably drive your car or truck for personal use and for your business. The IRS is not going to let you deduct the miles driven on your family road trip. You will need to track your mileage and keep your receipts to distinguish between personal mileage and business mileage. No matter what method you use, if you want to write off a car for business, you have to track your mileage.
All miles driven to and from a business-related outing are deductible. That includes a conference, business lunch, meeting clients, traveling between different job sites and even going to the store to buy supplies for your business.
You do not have to have a logo or business name on your vehicle, nor do you have to have the title in the business name. Uncle Sam doesn’t care about that. He just cares about the miles used for business purposes.
Which means that displaying your company logo on the side of your car while dropping your kids off at soccer practice does not make it a business trip. If you own a sporting goods store you may get some good business out of it, but you can’t deduct the miles.
Travelling from your home to your place of work does not count either. Only from one workplace to another or running business errands.
Sometimes this can get a little complicated. If you have any questions about whether a trip is deductible or not, talk to your accountant or schedule a free consultation.
There are two different ways to claim your vehicle expenses used for your business.
The Standard Method and the Actual Method. We’ll start with the Standard Method because it is the simplest.
Every year the IRS sets a standard mileage rate for the business use of your vehicle. Currently (for reporting 2021) that standard rate is 58.5 cents per mile driven for business use.
You literally just multiply your business use mileage (which you already have handy because you downloaded our Mileage Log and kept good records) by the current standard rate and that is your tax deduction.
So, say for 2021, you drove 10,000 business miles, your formula would look like this:
10,000 X 58.5 cents = $5,850 in deductions.
The Actual Method is a little bit more complicated, but depending on your situation, it could be worth the extra effort.
Remember, both methods require you to keep track of your business miles.
The Actual Method also requires you to keep all your receipts for all of your vehicle expenses, such as gas, oil changes, tires, and insurance. If you own your car or truck, it will also take into account your interest and depreciation.
The first thing you need to do is take a look at your Mileage Log and figure the percentage of business miles to your personal miles.
For example, if you drove a total of 10,000 miles last year and 9,000 of those miles were for business use, then your business use percentage is 90%.
Add up all of your vehicle expense receipts we told you to keep. Whatever percentage you calculated above is the percentage amount of those receipts that you can deduct on your business tax return.
Continuing with our example, you spent $2000 on vehicle expenses. You calculated that 90% of that was business use. You can deduct $1800 on your business return.
There are also some fun bonuses and depreciation methods you can potentially use to write off a car for business when using the Actual Method, but those should really be discussed with your accountant.
Incite Tax can absolutely help you save money. Our Tax Geniuses take a non-traditional (but perfectly legal) approach to keeping Uncle Sam’s grubby little paws off your hard-earned cash. Keep more of your money in your pocket.
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