McAtee & Associates, CPAs
Whether you are self-employed or an employee, if you use a vehicle for business, you get the benefit of tax deductions…
Deducting Business-Related Vehicle Expenses
Ordinarily, expenses related to use of a car, van, pickup or panel truck for business can be deducted as transportation expenses. (Use of larger vehicles, such as tractor-trailers, is treated differently and is not part of this discussion.). In order to claim a deduction for business use of a car or truck, a taxpayer must have ordinary and necessary costs related to one or more of the following:
*Traveling from one work location to another within the taxpayer’s tax home area. (Generally, the tax home is the entire city or general area where the taxpayer’s main place of business is located, regardless of where he or she resides.)
*Visiting customers.
*Attending a business meeting away from the regular workplace.
*Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. (These temporary workplaces can be either within or outside taxpayer’s tax home area.)
Expenses related to travel away from home overnight are travel expenses. These expenses are discussed in Chapter One of IRS Publication 463, “Travel, Entertainment, Gift, and Car Expenses.” However, if a taxpayer uses a car while traveling away from home overnight on business, the rules for claiming car or truck expenses are the same as stated above.
It is important to note that costs related to travel between a taxpayer’s home and regular place of work are commuting expenses and are not deductible.
There are two choices for claiming deductions:
- Deduct the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers’ salaries, and depreciation.
- Use the standard mileage deduction in 2016 and simply multiply 54 cents by the number of business miles traveled during the year. Your actual parking fees and tolls are deducted separately under this method.
Which Method Is Better?
For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses.
Tip: The actual cost method allows you to claim accelerated depreciation on your car, subject to limits and restrictions not discussed here.
The standard mileage amount includes an allowance for depreciation. Opting for the standard mileage method allows you to bypass certain limits and restrictions and is simpler, however, it is often less advantageous in dollar terms.
Caution: The standard rate may understate your costs, especially if you use the car 100 percent for business, or close to that percentage.
Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.
How to Make Tax Time Easier
Keep careful records of your travel expenses and record your mileage in a logbook. If you don’t know the number of miles driven and the total amount you spent on the car, your tax advisor won’t be able to determine which of the two options is more advantageous for you at tax time.
Furthermore, the tax law requires that you keep travel expense records and that you show business versus personal use on your tax return. If you use the actual cost method for your auto deductions, you must keep receipts.
Tip: Consider using a separate credit card for business, to simplify your recordkeeping.
Tip: You can also deduct the interest you pay to finance a business-use car if you’re self-employed.
Note: Self-employed individuals and employees who use their cars for business can deduct auto expenses if they either (1) don’t get reimbursed, or (2) are reimbursed under an employer’s “non-accountable” reimbursement plan. In the case of employees, expenses are deductible to the extent that auto expenses (together with other “miscellaneous itemized deductions”) exceed 2 percent of adjusted gross income.
Call today and find out which deduction method is best for your business-use car.
If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.
