Business Vehicle Deduction: Your Ultimate Guide to Vehicle Expense Tax Savings
Vehicle expenses are a popular deduction for America’s business owners. Did you know that you can deduct 53.5 cents per mile driven for business purposes?
There are a number of different vehicle expenses that can be deducted as well. If you are contemplating the purchase of a business vehicle, it is important to consider the potential tax savings as well.
Read on for an ultimate guide to filing a business vehicle deduction. Learn what can be deducted and what expenses should be excluded from your tax return.
What Expenses Are Eligible for the Business Vehicle Deduction?
Vehicle depreciation is one of the most impactful expenses for deduction purposes. Whether you finance or purchase it outright, the vehicle loses value the minute you drive off the dealership’s lot.
Depending on the accounting method utilized, you can deduct lease expenses as well. However, it is important to note that only the business portion of the lease is deductible.
Another impactful deduction is auto insurance. In high insurance states like New Jersey, this is a significant deduction.
Even scheduled maintenance and repairs are deductible. For instance, you can write off a replacement car battery from Battery Trust so long as it is needed for business reasons.
Lastly, expenses like gasoline, tolls, and mileage can be written off. The key is demonstrating that the expenses were directly attributed to a business purpose. To avoid an IRS audit, the best advice is to keep an organized record of all the expenses mentioned above.
In terms of mileage, you can deduct 53.5 cents per mile for all business-related travel. In order to deduct mileage, you need to utilize the standard mileage deduction rather than actual expenses.
What Accounting Methods Does the IRS Allow?
There are two accounting methods that the IRS accepts. The first method is called the actual expenses method.
Tax filers that use this method deduct all business-related vehicle expenses. You will also have to determine what percentage the vehicle is used for business.
Envision a scenario in which you use a leased vehicle 50 percent of the time for business. This means that you can only deduct half of the lease expenses.
The second method, a simpler alternative, is to utilize the standard mileage rate. To use this method, simply catalog all miles driven for business reasons and multiply by 53.5 cents per mile.
There are a few rules to keep in mind. Your daily commute or parking at the office is not considered a business expense. It is also not deductible if you deviate from business travel to stop at a store for personal reasons.
What Expenses Are Not Deductible?
Sorry, if you get a ticket or fine while driving a business vehicle it is not deductible. Also, if your employer reimburses you for any of these travel expenses you can no longer deduct it.
If you are not self-employed, you cannot deduct interest on a car loan. Most importantly, any use of the car for personal reasons cannot be deducted.
Wrapping It Up
Deducting expenses related to a business vehicle is a popular tax savings tactic. Our advice is to keep organized and detailed records of your expenses.
Expenses like auto insurance and depreciation add up and are impactful during tax season. If you enjoyed this article about business vehicle deductions, please check out our blog for other great pieces.