You own a business and that business needs a way to transport you, your employees, your goods. You probably already know about the standard deductions available to business owners, but you don’t know how to deduct expenses related to your vehicle. You’re in luck. Here’s how:
What You Cannot Deduct
Before discussing what you can deduct, let’s hit on a few things that the government will not allow you to deduct. First, vehicles that are used as heavy machinery or equipment, like dump trucks. You also can’t deduct vehicles used for hire, like taxi cabs, and air transport vans. Finally, you can’t deduct expenses related to luxury vehicles.
Even for legitimate business vehicles, the expense limit for write-offs is $3,160 for 2015 for depreciation, and that’s for new cars, not used. You are also allowed an additional $8,000 in bonus depreciation. For a used vehicles weighing over 6,000 pounds, only 50% of the cost can be expensed under section 179 expensing. and another 50% of the cost that wasn’t expenses under section 179 for a bonus depreciation.
You Must Keep Good Records
The IRS is fussy when it comes to the cost of vehicles, so you should keep good records to help the agency figure out what your deduction should be. Pick up a vehicle expense log at an office supply or stationery store and keep in your vehicle. You will almost certainly need it if you drive and intend to deduct mileage.
And, if you get into an auto accident, you’re going to want to speak with an attorney at salvilaw.com and record all costs related to the repair of your vehicle.
Deducting Standard Mileage
Standard mileage deductions change each year, but for the 2015 tax year, they are 57.5 cents per mile. You can, alternatively, deduct all expenses related to maintaining your vehicle. Generally, the more economical your vehicle is to maintain, the more likely you are to benefit from the mileage deduction.
When you deduct mileage from your vehicle, you’re not allowed to also deduct expenses for maintenance, so choose carefully. You obviously want the highest deduction possible.
Be aware that some travel is not counted as “business related” and therefore cannot be deducted. These miles include driving home from work, or driving to work from home. You cannot deduct a stop-off at a grocery store for personal reasons.
However, you can deduct interest on your auto loan, the registration and property tax fees, and parking fees and tolls you pay while using the vehicle for business purposes.
If you choose to deduct expenses, you can deduct things like oil and gas, tires, registration fees and taxes, licenses, insurance, rental or lease payments, maintenance and repairs on your vehicle, garage rents, and vehicle loan interest.
Should You Buy Or Lease Your Business Vehicle
When you buy your vehicle, you can take normal business deductions. When you lease your vehicle, you cannot depreciate it. It makes more sense, then, to deduct mileage or the lease payment.
You may deduct the lease payment instead of deducting mileage. Whether this is better, financially, is something you should discuss with your accountant. For vehicles that are first leased in 2015, you must subtract an income inclusion amount from the deductible amount, with a maximum threshold of $18,500.
Dominic Daly has always had a company car, first when he was working as a salesman and now with his own business which has a fleet of 6 vehicles. He writes on the topic of company cars for business blogs.