Hit the Road! The Basics of Business-Related Vehicle Expenses
Business-related car expenses tend to add up, and it can be confusing to know what is and is not tax deductible. We hope that this simple breakdown of what you can and cannot write off when it comes to your car will help you navigate this often long and winding road.
First, it's important to note that personal use of your car is not deductible as a business expense. This means that your commute to work and back, parking at your office, and any miles you put on your car cruising around during your daily routine isn't something you can write off. This is also applicable to any kind of traveling that requires taking an uber, train, trolley, or another form of transport to and from work. Bottom line: your trip to Dunkin for that midday pick-me-up is not tax deductible.
However, you can deduct the cost of operating your vehicle for business purposes in two ways.
You can choose to use the standard mileage rate
You can track your actual car expenses. (In order to write these off, you must keep track of business-related driving.)
Standard Mileage Rate
This is the one case when we feel it’s ok to stick to the standard, as it is the simplest way to deduct your expenses. In order to calculate this deduction, you simply multiply the number of business-related miles driven by the IRS rate. The current rate from July to December of 2022 is $0.625 per mile. You are also able to deduct interest on a car loan if you are self-employed and file on schedule C. If you do this, you are able to deduct a percentage of the loan based on how much you use your vehicle for business.
If you are the owner of your car and want to use the standard mileage rate, you have to choose this option in the first year you use your car for business. If you lease your car and choose the standard mileage rate, you must do so for the entire term of the lease.
Track Actual Expenses
You can also choose to deduct actual car expenses, but this method is a bit more complicated. If you choose this method, you still only get to deduct the portion related to business miles, so you must keep a mileage log and save every receipt. It is generally more work and results in a smaller deduction. If you choose this method, we recommend you reach out to your tax expert to talk you through all that is necessary to use these deductions and what is allowed, but let’s cover a few of the basics.
Parking fees and tolls
You can also deduct parking fees and tolls accrued outside of your main commute and place of business. This includes parking at a client location, a training or conference, a business meeting, or business-related errands.
Travel away from your home
These rules are similar when traveling away from home. If you drive to reach your business travel destination, all mileage, tolls, and parking are deductible. If you fly, mileage to the airport in your car or alternate transportation is deductible. But remember, if you use your car for personal use during business travel, for instance, to sightsee, any expense related to that travel is not deductible.
Record Keeping
It is important to keep clear records regarding your business travel. Though it is not necessary to log your beginning and ending odometer for each time you incur business miles, it is necessary to be able to support your deduction by providing records showing where you are, when, why, who, and how it is business related. Most mileage tracking apps paired with your calendar records would provide the "proof". Your job is to track and be able to defend the mileage claimed for business.
As a business owner, it is important to be clear on the IRS rules for using your car for business. If you are having trouble delineating whether or not something is a business expense, ask yourself if you are driving for the purpose of business and be sure to keep records of this travel. You can also download our helpful auto expense worksheet at our website.If you need clarity on anything tax and travel related, feel free to contact us today.
