Calling all companies on the move! Is your business going places? And we mean literally. If you own vehicles as part of your business, then this post is for you. We’re here to help you decode the tax deductibles that come riding along with your company cars.
You might be asking yourself Are My Vehicle Expenses Tax Deductible? Yes! Let’s find out what specifically you can deduct.
Common Questions and Answers
Can I Deduct Mileage?
Yes! You can either deduct based on the mileage credit or the cost of gas. For most businesses, mileage credit gets you the most
Can I Deduct My Lease or Car Loan Payment?
Unfortunately, your car loan payment or lease is not tax deductible.
Can I Write off My Registration Costs?
Yes! The percentage will depend on whether the car is only used for business purposes or if it is a car used for both business and personal reasons.
What Other Car Expenses Can I Deduct?
There are many car expenses you can deduct, including:
- Gas
- Oil Changes
- Registration Fees
- Tires
- Car Depreciation
- Insurance
It’s important that you get a concrete understanding of how car tax deductions work. Read the details below, and make sure you talk to a tax professional before claiming any car expenses.
Which of my business vehicle expenses are tax deductible?
First, let’s cover the basics and define what we’re talking about here. We know, we know… the term “business vehicle” may sound pretty darn straight-forward, but be warned: If your company ride is dump-truck, limo, or taxi-shaped, it plays by different tax rules. So what’s actually considered a business vehicle, then? Any car, van, pick-up truck, or SUV that is used for company activities qualifies as a business vehicle. And if you have one, we’ve got the tax info you need to keep you in control — and receiving the deductions you’re entitled to. Cha-ching!
You may know that mileage is an acceptable and common deduction. But what about things like car repairs, parking, tolls, and other expenses incurred while you’re cruising around, handling your business? How do you know what’s allowed and what’s off-limits in the world of business vehicle expenses? We’ve got you.
The first thing to figure out is whether your vehicle is strictly for business use, or mixed-use. This determines whether you get to deduct the whole she-bang, or… you know… just the business part. According to the IRS, under Topic Number 510 – Business Use of Car: “If you use your car only for business purposes, you may deduct its entire cost of operation. However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use.” Fair enough.
So let’s say you mix business and pleasure when using your business vehicle, because that makes things slightly more complicated tax-wise. Since you can’t write off your entire cost of operations in this case for a mixed-use vehicle, here’s how to break down what you can. You’ll need to figure out deductible car expenses using:
- The standard mileage rate method and / or
- The actual expense method
The standard mileage rate method
Under the standard mileage rate, the IRS sets a fixed rate per mile — a cost that is tax deductible for each mile driven for business reasons. Pretty nice, right? The going standard mileage rate for 2019 is 58 cents / mile, so you’d use a simple formula to determine your deduction:
(The total number of business miles driven) X (0.58 cents per mile) = Your deduction
There’s no catch, unless you hate record-keeping, because it’s pretty much required to make this deduction work for you! You’ll need to keep an accurate log of the number of business miles driven for the year in order to claim them. So, whether you keep a log or rely on one of the many super-handy mileage tracking apps out there, the miles directly used for business purposes can be deducted at the standard mileage rate — and the tax savings are real.
The actual expense method
Are you still with us? Okay! This one’s a bit more complicated, but worthwhile for business owners who like tax savings [read as: every business owner everywhere]. In addition to the standard mileage rate, interest on an auto loan, registration and property tax fees, parking, and tolls can also be deducted — so long as they are proven business expenses. Here comes that whole record-keeping thing again. The actual expense method requires accurate, concise records of documentation including the amount, date, and a description of costs you intent to claim as business vehicle tax deductions. The IRS requires business owners to determine what it actually costs to operate the car in order, and that includes spend on:
- Gas
- Oil
- Auto repairs
- Tires
- Insurance
- Registration fees
- Licenses
- Depreciation (note the depreciation deduction limits exist every tax year, and are made available by the IRS)
Thinking about selling your business vehicle? Read about tax rules here.
If you forget everything else you’ve read here, remember this: No matter which method you use, you must keep records to prove the expenses can be attributed directly to your business. Keep these tips in mind to log your business vehicle tax deductions, and make the most of the tax savings that come along with owning a company car. Feeling ready to make the most of your business vehicle tax deductions? Go get ‘em!
Do you have unique issues or concerns not discussed in this blog then please contact us by email or phone. We are here to help.
