How and When to Deduct for Business Use of Vehicles

Do you rely on one or more vehicles to perform your business operations?  If so, you may be able to deduct a substantial amount of those expenses on your taxes.

Maybe you have a local business with a fleet of service vans like an electrician or plumbing company. Maybe you are a solopreneur operating a single vehicle for your mobile dog grooming business. Whatever the situation, if you need a vehicle to perform your business operations, then you need to understand how to execute the business vehicle tax deduction.

Deducting business use of vehicles can have serious implications on your taxes. With that in mind, here are a few considerations as it relates to business vehicles and taxes.

Always Allocate for Personal Use

As with other important tax deductions for businesses, you can only deduct expenses directly related to the business. In other words, you need to allocate for personal use when calculating your business vehicle tax deduction.

If you only use the vehicle for business use, that’s great — however, many small business owners overlap the use of their vehicle for business and personal activities. For instance, if you’re a local contractor, you might only have one pickup truck that you use to transport materials and equipment to job sites and for your personal use, too.

If there is an overlap in use for your vehicle, you need to account for it.

When preparing the taxes of your small business for the year, you’ll want to compute the percentage of business use for each vehicle. This requires documenting the miles driven throughout the year for both personal and business reasons. With this information, you’ll be able to determine the deductible vehicle business expense for your business’ taxes.

Calculating Actual Vehicle Expenses

Many small business owners do not take full advantage of the automotive-related deductions afforded to them. Did you know that you can also deduct gas, repairs, and insurance if you can demonstrate that it was a business-related expense?

Examples of potential vehicle-related expenses include:

  • Gas and oil
  • Tires
  • Maintenance and repairs
  • Licenses
  • Registration fees and taxes
  • Insurance
  • Interest on auto loan
  • Depreciation
  • Garage rent
  • Parking and toll fees

Using the percentage of business use of the vehicle, you will be able to calculate the tax-deductible amounts of the vehicle-related expenses.

For example, let’s say that with insurance, gas, maintenance, and other relevant automotive expenses you spent $5,000 for the year. You previously determined that of the 10,000 miles driving on the year, 7,500 was for business purposes (75%). You could then deduct up-to 75% of the $5,000, or $3,750, in actual vehicle-related expenses for your business.

Standard Mileage Deduction

There’s an alternative to the actual vehicle expenses called the standard mileage rate. For 2018, that rate is 54.5 cents per mile.

You can apply this method to miles driven for business use only. For example, driving to a construction site (not your regular business location), picking up materials, or meeting a client are considered business miles and can be deducted. It can sometimes be tricky to know when you can or can’t deduct for business purposes, so it’s always wise to contact a local CPA to help you file your business taxes.

Keep Detailed and Accurate Records

As with all business tax deductions, it’s easiest to calculate accurate amounts if you have detailed and accurate records supporting your claims. The IRS can be particular about vehicle deductions, so providing your accountant with clear and defined records of business miles and other relevant expenses can help you maximize your deductible for automotive expenses.

Business owners can track travel dates, mileage, and purposes of travel manually in a journal or spreadsheet. You can also utilize mobile applications and other automotive-technology to track and record the daily use of your business vehicles. Outside of mileage records, always keep receipts and details for other vehicle expenses like licenses, insurance, and maintenance.

Contact a Local CPA Firm

The business vehicle tax deduction can have huge implications on your company’s tax return. As a result, it’s important to maximize the amount you can write-off. To guarantee that you get the most accurate deductible for business use of vehicles, contact a local CPA Firm to assist with your tax planning and tax preparation. Rivero, Gordimer & Company is a Tampa CPA Firm that specializes in business tax.

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