Vehicle expense deductions

Vehicles expenses are a necessary expense for most operations but may require special treatment

expert tax adviceIf you use your car 100% of the time in your business and you use it only for that purpose, you may deduct the entire cost of its operation. However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use. When you have a small business your vehicles have a probability of being used personally. This post was developed to prevent denial of part or all of your deduction for business use of your vehicle.

There are two methods by which you may deduct the business use of your vehicle. You may deduct actual expenses or use the IRS standard mileage rate. No matter which method you choose, the law requires you keep adequate records to substantiate your claim for mileage expenses. Understand the expert tax advice presented below will save you headaches later.

If you choose to deduct the actual cost of operating your vehicle

To use the actual expense method, you must determine what it actually costs for business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments). The Modified Accelerated Cost Recovery System (MACRS) must be used for any vehicle placed in service after 1986. If you used the standard mileage rate in the year you place the car in service. And, subsequently change to the actual expense method later, you must use straight-line depreciation for the remaining useful life of the car.

If you choose to deduct the “Standard Mileage” rate to determine your vehicle expenses

You must choose to use the standard mileage rate for a car in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses. For a car you lease, you must use the standard mileage rate method for the entire lease period including renewals. The standard mileage is subject to change, be certain you use the most current one. To use the standard mileage rate, you must own or lease the car and:

    • You must not operate five or more cars at the same time, as in a fleet operation,
    • A depreciation deduction for the car can not be used with any method other than straight-line,
    • A Section 179 deduction can not have been claimed on the car,
    • You must not have claimed the special depreciation allowance on the car,
    • Actual expenses can not have been claimed after 1997 for a car you lease, and
  • You can’t be a rural mail carrier who received a “qualified reimbursement.”

Record Keeping

There’s no particular method of bookkeeping you must use. However, you must use a method that clearly and accurately reflects your business use of your vehicle.

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