Every day, millions of cars hit the road for transportation purposes. From SUVs to pickup trucks to smart cars, drivers of all vehicles have to deal with the costs associated with driving and maintaining one that can add up quickly over time.
If you spend time behind the wheel for business purposes, have you explored the tax deductions on vehicle costs that you may be able to claim when filing your taxes with the IRS?
The IRS offers a tax write-off option on certain vehicle-related costs. In many cases, this deduction is overlooked by small business owners and self-employed individuals who may be able to claim it and save on their taxes. To qualify for this deduction, you must use your vehicle for business travel purposes.
It’s not quite that simple, though, as the IRS has a few restrictions on the books on what kinds of trips qualify when calculating this write-off. If you drive your vehicle from a place of employment to another location to meet face-to-face with a client or to conduct another business activity, this trip would qualify for the deduction. If you run a small business out of your home and travel by car from your home to a separate location for business reasons, the costs of this trip would also qualify to be written off.
There are two basic routes you can take in order to deduct qualifying vehicle expenses:
- One is to claim the deduction according to the number of miles driven.
- The other option involves determining the amount of costs you incur to use your vehicle for business purposes.
If you use the miles driven option, the standard mileage rate for tax year 2013 is 56.5 cents per mile. If you choose the actual expenses option, you may include gas, oil changes, auto repairs, maintenance, tolls, and insurance expenses when determining how much is deductible. It is important to explore both options to see which one would give you the largest potential deduction amount and reduce your tax liability the most. There are various professions in which time on the road is a big part of the work involved in them. Taxi drivers, bus drivers, limo drivers, and truck drivers are a few of them.
In order to write off vehicle-related expenses on a tax return, though, you almost always have to be a self-employed individual. Small business owners and 1099 contractors are the common types of individuals who fall under this umbrella. Individuals who hold W-2 positions through an employer and use their own cars for activities that are part of their work are normally unable to write off these costs. The exception to this is that if your employer doesn’t compensate you for such expenses in the form of a reimbursement, you may be able to claim them as a deduction under the unreimbursed employee expenses section on your IRS tax return.
The bottom line is that you should be careful when attempting to claim the vehicle deduction to ensure that you are fully qualified for it due to the various parameters on it.
Legal Disclaimer: To ensure compliance with requirements imposed by the IRS, we inform you that any US federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and it cannot be used for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from an independent advisor.
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Category: Tax Management