Operating a business can be expensive, making every allowable deduction count when it comes to tax time. Luckily, a business is typically allowed to deduct a wide variety of expenses associated with the operation of the business, including vehicle expenses. As a general rule, any time you use your vehicle for business related reasons, the expense is deductible. Vehicles, for purposes of the deduction, include cars, vans, panel trucks and pickup trucks. As with all Internal Revenue Service, or IRS, rules there are some important points that you must understand in order to claim the business use of your vehicle deduction.
Record keeping is of paramount importance when claiming a business use of your vehicle deduction. Start when the vehicle is placed in service. If your vehicle is used for both personal and business purposes, keep a detailed record of the mileage for each trip. Regardless of whether the vehicle is used solely for business purposes, or for both personal and business use, also keep records of gas, license fees, repairs and anything else related to the use of the vehicle.
Two methods for determining your deduction amount are allowed — the standard mileage rate method and the actual expense method. Before deciding which method to use, figure out the deduction using both methods to determine which offers the largest deduction. Although either method may be used, the method you choose to use in the first year that your vehicle is placed in service for the business will impact your options in future years.
The standard mileage rate is simple to calculate. You simply multiply the miles claimed for the year as business miles by the current rate per mile. The rate per mile changes on a regular basis so be sure you know the current rate.
The actual expense method requires you to add up all the costs associated with the vehicle for the year such as gas, license plate fees, tires and tune-ups and then multiply that figure by the percentage of use assigned to the vehicle for your business. If the vehicle is used solely for the business, then there is no need to multiply the total expenses by a percentage.
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