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Deducting Vehicle Expenses the Right Way

Deducting Vehicle Expenses the Right Way

If you’re thinking of purchasing a dedicated company vehicle or using your own vehicle for company business, or if you already have a business vehicle, we wanted to share some great tax advantages that can often be overlooked when you claim this deduction.

Committing a capital expense? The IRS requires business owners to capitalize the cost of purchased motor vehicles used in business, with those costs recovered through annual deductions for depreciation. Even if you use your car for both business and personal reasons, you can recover a portion of expenses by allocating costs between business and personal usage based on actual mileage. There are dollar limits on the depreciation you can claim, so refer to IRS Publication 463 for more information.

Need a quick fix? Repairs on business vehicles are deductible. However, reconditioning or overhauling a business vehicle is a capital expense, recovered only through depreciation. Other car expenses can either be deducted by cost or covered under the standard mileage rate deductions (but not both). These may include lease payments, gas and oil, tires, tune-ups, insurance, and registration fees.

Want to get around? Business mileage is a huge tax deduction that, frankly, not enough of us utilize. If you spend a lot of time heading from one business event to the next, you’ll want to know the IRS mileage rules well. The current standard mileage rate is 55 ½ cents per mile. But note that, as we point out above, you cannot deduct vehicle expenses if you choose to use standard mileage rate deductions instead. And the rules vary slightly for purchased versus leased vehicles. By keeping good records, you can deduct actual expenses (including depreciation) or the standard mileage rate, whichever is greater. This is a year-to-year election.

Homeward bound? Mileage to and from home/work is generally not deductible commuting. However, you can eliminate this nondeductible expense by also working from home. Do you check email or work before you leave in the morning? Do you get back to work as soon as you arrive home from a meeting or after dinner with the family? Then you may have some leverage. If you work from a qualified home office– especially if you rent your home office space to your business, as we’ve discussed before – you probably have eliminated the non-deductible commuting portion of this expense. Call us to discuss requirements, documentation, and other information you may need in order to take advantage of this tax savings.

Image credit: lightwise / 123RF Stock Photo

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