Do you use a vehicle for business purposes? If so, you may be able to deduct expenses related to the operation of that vehicle on your taxes!
Do You Qualify for a Deduction?
If you have a vehicle that you use exclusively for business purposes, all of the expenses relating to the operation of that vehicle are deductible as a business expense. There are limits to this deduction, though, so be sure you consult the appropriate IRS publications before you file!
If you use a vehicle for both business and personal use, you can still deduct the cost of operating the vehicle, but only for the business-related use. That means you can deduct what it costs to drive to a client meeting, but not to dinner with your family.
Understanding Vehicle Expenses
As anyone who owns or leases a vehicle can attest, the expenses incurred in operating an automobile extend far beyond just the cost of gas. You also have to pay and account for:
- Registration fees
- Depreciation or lease payments
Standard Mileage Versus Actual Expenses
The IRS knows that all of these costs add up. To best serve taxpayers, they set out two different methods for tracking and deducting expenses relating to the operation of a vehicle: the standard mileage rate and the actual expenses method.
The standard mileage rate is calculated for the IRS by an independent contractor. It is determined by taking into account the fixed and variable costs of operating an automobile during the specific tax year.
Deducting actual expenses is just what it sounds like. You keep track of what you actually pay to operate your vehicle (for business purposes) and use that figure to determine the amount of your deduction.
Choose Your Method Wisely
The IRS has numerous rules regarding the use of these two deductions. To use the standard mileage deduction for a vehicle you own, you must select this method in the first year that the car is available for business use. After that first year, you can chose which method you prefer.
For a car you lease, the situation is slightly different. You will be locked into using one method or the other for the entire lease term (including renewals) based upon which one you choose in the first year of use.
Whichever method you choose, you will still be able to benefit from a valuable deduction for business use of your vehicle. If you have questions about this type of deduction, the pros at Taxation Solutions in Virginia Beach will be happy to help!