Business Use of Personal Vehicle

Downtown, uptown, residential areas . . . you happen to see them all back and forth, so many times, all in a day. Chances are, you are in a profession that practically makes you live in your vehicle. Seems your vehicle has basically become an office on wheels.

It’s also a tax deduction, if you structure it correctly. Karen, a marketing manager by profession knows that you can deduct auto expenses when you own or lease a personal vehicle and use it for business purposes. For instance, making deliveries, traveling to and from meetings, trips to the office supply store, your bank, clients, and so forth are considered a business deduction.

Commuting, on the other hand, going back and forth from home to work, is not a deduction.

You have two different ways of calculating a business deduction for a vehicle: The Actual Expense Method or Standard Mileage Method. And both methods require you keep a logbook. 

If you choose the Standard Mileage Method, all you need to do is keep a logbook of both business and personal miles driven, and a record of any parking fees, tolls, or auto license tag expenses. While the Standard Mileage Rate is usually easier to track, you must still record the date, mileage driven, names, and relationships of clients, and business location for each trip. Multiply the business miles driven by the standard mileage rate and that is your deduction, including any expenses for parking fees, tolls, and auto license tags. Today there are many smartphone apps available to keep track of your mileage from your smartphone GPS.

Alternately, if you use the Actual Expense Method, you still must keep a logbook for your business miles versus your personal miles and all information listed above. Along with it, under the Actual Expense Method, you must keep track of maintenance, gas, tires, insurance, interest expense on loans, and other expenses out of pocket. You even get a tax deduction for depreciation on your vehicle depending on the business use of that vehicle.

Which method is best?

Keep track of the logbook and figure it out using both methods to see which one gives you the better deduction.

The caveat is, once you’ve used the Actual Expense Method, you are stuck using that method until you trade vehicles. Further, if you use the Actual Expense Method, you must take depreciation for the business use and you may have to recapture the depreciation when you dispose of the vehicle. Be sure you can prove that your business use of a personal vehicle is MORE THAN 50% or you will have to revert to the mileage method for that vehicle.

Business Owned Vehicles

Autos and trucks owned and titled to the business name do NOT need logbooks kept IF you park the vehicles at the office location, when not in use and the vehicles are not used by employees for personal use or taken home at night.

This rule does not apply if you have a home office. You are still required to keep logbooks, because the Internal Revenue Service (IRS) uses a “first call last call” rule to compensate for reduced commuting by owner-employees.

The first call (trip) and the last call (trip) you make each day will be considered commuting and not deductible.

Also, interest on auto loans and auto tags paid are tax deductible for businesses whether they use Standard Mileage or Actual Expense methods.

Here are some points to remember:

• Two methods for vehicle deduction: Actual Expense versus Standard Mileage
• Both methods require a logbook to keep track of business versus personal mileage and reason for trips (Consider smartphone apps that track your mileage)
• The best method is the one that gives you the biggest deduction; but there are some drawbacks to both (depreciation recapture and possible reduced deduction on converting actual to mileage)
• With either method, you also get to write off your license plates if you itemize on your tax return

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.
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