Tax-Deducting Auto Expenses For Dummies
Motor vehicles are money-eaters — most small businesses’ biggest expense of all. Considering maintenance, insurance, gas and purchase prices, cars and trucks are larger than employee salaries. According to the latest IRS statistics over 14% of all small business expenses are for vehicles.
So, even the IRS tells us – perhaps unintentionally – that autos can produce one of your largest business expense deductions. And, an auto can yield thousands of dollars in tax savings year-after-year. Sharing your car expense with Uncle Sam is guaranteed to give you a warm and fuzzy feeling!
Tax rules for claiming business car and truck expenses are fairly straightforward, at least by tax code standards. Here are the top four commandments:
- Thou shalt keep good records: the tax code says you must track your business miles. Do you have a smart phone? There is an app that makes this easy as pie, or “pi” if you are more into math than dessert. BTW it’s called MileCatcher.
- If you, like most small biz operators, use the same car for business and pleasure, your second commandment: Thou shalt allocate driving between business and personal miles. Driving to and from work, aka “commuting,” trips to the mall and gawking at the scenery are all personal (and not deductible) driving.
- Thou shalt choose between two tax deduction methods: Actual Expenses or Standard Mileage. You don’t have to decide (in most cases) until it is tax filing time. And, then the choice is made easily using tax prep software like Turbotax, or by your tax return preparer. My wild guess is that you are going to choose the method that saves you the most $$$. I know this because only savvy business people are reading this blog.
We’ll cover the details and show how the two deduction methods above work later, but these are the ground rules. Now, get in your car, with your smart phone in your pocket or purse, and run up some tax deductible miles!
For more information, see my book, Tax Savvy for Small Business (Nolo) at Amazon.com or visit my website, taxattorneydaily.com.