Next to your home, your car is probably the most expensive investment you make. The costs of paying for and maintaining it can be considerable. Can you recoup some of your investment by claiming vehicle expenses on your tax return? Sometimes.
The IRS has many restrictions on the business use of a vehicle, and those restrictions have many exceptions. Better to know these upfront than to have to correct a tax return after its been filed. Here are some questions and answers that may help you decide whether you’re eligible.
A car, van, pickup, or panel truck.
These are “ordinary and necessary expenses” incurred when you, for example:
The daily commute to and from your regular office is not deductible. The IRS considers this personal commuting expenses.
The IRS considers these travel expenses, and they’re reported differently. Your car expense deduction, though, is calculated the same way in both situations.
You’ll calculate the expenses incurred for each by determining how many miles you drive for business and how many you drive for personal reasons.
Yes, you can deduct the cost of driving to “another work location in the same trade or business.”
There are two options. Using the standard mileage rate, you can claim 57.5 cents per mile (2015 tax year figure). You are required to use this method for the first year you use the vehicle for business purposes. After that initial year, you can choose between the standard mileage rate and actual car expenses. These include depreciation, oil and gas, insurance, and repairs.
Yes, especially for cars. Depreciation is very, very complex, and sometimes requires more than once calculation method.
Possible, if you use the car for business more than 50 percent of the time–and only for the first year.
You know the drill here. If the IRS ever wants to examine your return, it will expect evidence like receipts, canceled checks, and credit card statements. You’ll need to document the date and location where you incurred the expense. You’ll need accurate mileage records (miles driven, the purpose of the trip, etc.).
These requirements scream for some kind of organized computer log or written diary, along with a safe place for any paper receipts, bills, etc.
If you’re planning to deduct car expenses, it’s important that you keep careful paper or electronic records.
Maintaining accurate records for car and truck expenses is time-consuming and detail-intensive. To avoid having to fix completed tax documents that the IRS has questioned, talk to us before you put a vehicle into business use. We’ll be happy to evaluate your transportation situation and guide you through the process.