If you own a small business, you may be able to deduct expenses related to your vehicle. Business use of vehicles can lower your taxable income and save some extra tax dollars. The general rule is you can either deduct mileage or actual costs. This requires a slight calculation to see which is more beneficial to the taxpayer. It is crucial to maintain good records, keep copies of receipts, and track any and all expenses that can be deducted regardless of the method used to deduct vehicle expenses.
As of 2019, the mileage rate was increased to 58 cents per business mile driven. Proper records are needed to break out business mileage versus personal mileage. With today’s technology, there are a variety of apps that can be used to track this. It is important to note that commuting is not considered business mileage. Commuting is defined as traveling from your home to your work.
There are a variety of costs related to your automobile that you can deduct in addition to taking a deduction for mileage. These expenses include: registration fees, taxes, auto loan interest, parking, and tolls. These expenses can be deducted regardless of whether the taxpayer chooses to deduct mileage or actual costs.
When the taxpayer chooses to deduct actual costs related to your vehicle, rather than taking a mileage deduction, the taxpayer has the burden of proof in which they have to prove any vehicle costs deducted are actually related to their business. The taxpayer also has to determine what the business use percentage of the vehicle was in relation to personal use. This percentage determines what percentage of the expenses is allowable. The taxpayer can only deduct that percentage of the expenses on their income tax returns. For example, if the taxpayer determines that their vehicle is used for business 75% of the time, and they have $10,000 worth of allowable business expenses, the taxpayer may only take a deduction for $7,500.
As stated above, choosing to deduct the actual costs related to your vehicle also allows the taxpayer to deduct registration fees, taxes, auto loan interest, parking, and tolls under this method. In addition, taxpayers can deduct expenses paid for gas, oil, tires, licenses, insurance, lease payments, and repairs and maintenance. These expenses are all limited to the business use percentage. Depreciation is an additional benefit that taxpayers are allowed to deduct when choosing this method. Automobiles go through a lot of daily wear and tear over their lifetime. Depreciation is a non-cash expense that is used to expense the reduction in value of the automobile over time.
There is still plenty of time in 2019 to calculate which method will save you the largest amount of tax dollars.