Posted on: 15 September 2017
One of the perks of owning a business is the ability to write quite a few expenses off your taxes. If you drive regularly for your company, you can recoup some of the cost of owning and maintaining a vehicle by deducting certain related expenses from your taxes. Here are two things you have to know about taking advantage of this option to avoid making an expensive mistake or worse.
Not All Costs are Deductible
The most important thing you need to know about deducting driving costs is not all of them can be written off. Only costs associated with your business are eligible. If you use your personal vehicle for your business, only the costs associated with errands you do for your company can be deducted from your taxes.
For example, you own a home business and use your car to travel to your client's office and then go shopping for groceries afterwards. Only the mileage, gas, etc used to travel to the client can be written off. The trip to the grocery store cannot be deducted since it was a personal errand.
Unless you're using a vehicle completely dedicated to business use only, you'll need to carefully log the miles and time you use your car or truck for business errands, because you'll need this information to adequately deduct the right amount from your taxes. If you use your vehicle for business 60 percent of the time, for instance, you can deduct 60 percent of the cost of an oil chance for the vehicle.
Additionally, you'll need to obtain and save receipts for any fueling and maintenance you do on the vehicle. This will help ensure you get your maximum deduction and also to prove to the IRS that you did incur those expenses.
There are Two Ways to Calculate the Deduction
Another thing you need to understand about deducting driving expenses is there are two ways you can do it. By far the easiest way is to use the standard mileage rate provided by the IRS. Every year, the agency set the amount of money per mile driven you can deduct from your taxes (e.g. in 2017, the amount was 53.5 cents per mile). So if you drive 100 miles for business in a year, you can deduct $535 from your tax liability.
The primary benefit of using this method is you don't have to save receipts or calculate the percentage of time you use your vehicle for business, because the rate factors in all the costs associated with maintaining a work vehicle. You can simply add up all the miles driven for business, multiply it by the per mile rate, and write off the total. This significantly simplifies the process of filing your taxes.
On the other hand, the per mile rate may not fully cover the costs you incurred during the year. If you racked up $1,000 in maintenance and fueling costs during the year but the per mile rate only lets you deduct $750, you'll be losing $250 in potential write offs.
If you suspect your vehicle costs are more than what you would get if you used the per mile rate, it may be better to opt for the actual expenses method. With this method, you would tally up all your receipts for the vehicle expenses and deduct the total amount.
This will let you maximize the amount you can take off your taxes. Be aware, though, that you can only deduct the amount associated with the percentage of time you use the vehicle for business. As noted previously, if you only use your vehicle for business 60 percent of the time, you can only deduct 60 percent of the expenses.
It's a good idea to consult with a tax preparation specialist who can help you determine which method works best for your business.
For more information about this deduction, contact an accountant.Share