We’ve touched on this topic briefly in an old blog, but we’d like to spend a little bit more time on a subject that many of our clients have questions about—getting deductions for business-related vehicle expenses. If you have a vehicle that you drive for business purposes, you can rack up a lot of miles, which means more oil changes, tire replacements, and other routine maintenance. Rather than simply paying for these types of repairs and maintenance on your own, you can record them as a business expense and receive a deduction when you file your taxes. Here’s what you need to know and do to receive this deduction.
When it comes to business-related vehicle expenses, you have two options for your deduction:
No matter which option you choose, it is important that you keep a detailed record of your expenses and your business-related mileage. So let’s talk a little bit more about how to keep appropriate records for this type of deduction.
Most people choose to take the IRS’s per-mile deduction for their business vehicle expenses, as it usually comes out to a higher total amount. If you want to take this route yourself, then you need to ensure that you keep an accurate, detailed record of every mile you drive for business purposes. Create a chart or spreadsheet that includes the following information:
You should then add up weekly mileage totals, as well as year-to-date totals. This will help you be completely prepared when the time comes to file your taxes. Remember, you can only include mileage acquired for valid business purposes in these logs.
In addition to keeping the mileage log, you will still need to keep copies of all receipts associated with the vehicle used for business purposes.
It’s also important to note that there are a few instances when you will not be permitted to claim the standard mileage rate deduction. To find out if you qualify for this deduction, come by The Jones CPA Group.
If you prefer to claim a deduction for actual car expenses, or you don’t qualify for the standard mileage rate deduction, then you will need to keep detailed records of the actual cost of maintaining your vehicle. You include the following types of expenses:
If the vehicle you are claiming a deduction for is used for both business and personal reasons, then you will only be able to claim a percentage of the vehicle maintenance expenses. For example, if you are a reseller for a company and you drive your car 15,000 miles for business purposes and 5,000 miles for personal reasons in one year, you will only be able to claim 75% of your vehicles maintenance expenses as a deduction. Because of this, a mileage log as explained in the previous section needs to be maintained.
In order to get this type of deduction, you have to keep a detailed record of your expenses, along with receipts for every expense. You can keep a spreadsheet of the expenses for an easy way to total them come tax season, but it is absolutely vital that you keep the receipts as well. If you can’t prove the expenses, then the IRS can choose to not give you the deduction. You can either keep the receipts in a physical file, or store them electronically by scanning or taking pictures of the receipts.
There are strict laws that stipulate the types of vehicles that qualify for this type of deduction and what expenses you can claim. It is best to work with an experienced CPA when claiming these kinds of deductions to ensure that you are filing correctly and getting the maximum possible deduction.
If you qualify for both types of deductions, The Jones CPA Group in Orem can help you figure out which type of deduction will give you the highest return. It may even be worth the time to calculate your deduction using both methods so you can determine which will give you the biggest deduction when you file your taxes. But remember, no matter which way you choose to claim a vehicle deduction, you absolutely must keep detailed, accurate records—either a mileage log or expense receipts—in order to receive the deduction come tax time. For more information, come by our CPA office in Orem.