Posted by Raven Skylar Tax & Consulting, LLC

Car Expenses One Can Deduct for Business Driving

Car Expenses One Can Deduct for Business Driving

Business owners can deduct expenses for using their vehicles for business purposes. For one to qualify for such driving expense deduction, one needs to prove that the trip was business-oriented. You cannot deduct personal driving commuting and other non-business-related expenses as business driving expenses.

 

How Expenses are deducted 

Uncle Sam allows two different methods to deduct business driving expenses – standard mileage deduction or actual expense deduction. Uncle Sam's requirements, limitations alongside your situation determine your choice.

 

Standard Mileage Allowance: The easiest to use is the standard IRS mileage deduction available for business driving. Even though it changes yearly, all you need to do is multiply your business miles for the year by the year’s rate and enter the value at the appropriate line. 

IRS requirement for the standard mileage approach is guided by the following

  • You are restricted to a maximum of four vehicles at once. 

  • You cannot claim a depreciation deduction for the vehicle using any approach asides from the straight line.

  • You cannot claim actual expenses for a vehicle you leased

  • Claiming your car’s special depreciation allowance is not allowed

  • Claiming section 179 deduction for the vehicle is not allowed 

One can deduct other expenses alongside the standard mileage deductions like:

  • The car loan’s interest expense based on the time percentage it was used for business purpose

  • Parking fees and tolls related to business apart from the rate of the standard mileage.

Actual Expenses: You can deduct all the basic expenses related to business driving. Examples are gas, depreciation, licenses, vehicle titles, oil, repairs, registration fees for the vehicle, garage rent, etc.

 

Business Driving and Depreciation Expenses 

A car dedicated to the business is classified as an asset, and such cost is a capital cost meaning that it can be depreciated through the years.

For people using the standard deduction, it is impossible to deduct depreciation on the business vehicle. You have to go through the actual expense approach for you to depreciate the car. Other rules apply if the vehicle is not used more than 50% for business purposes. 


Driving as a Business Owner 

As long as you drove your vehicle for business purposes, you can deduct the expenses as a legitimate business expense on your tax return. 

The mode of recording your deduction for the business is a matter of your business structure and the type of tax you file. A lot of small business owners do employ Schedule C to report their business losses and profits.

 

Keeping Records for Taxes 

For you to deduct vehicle expenses for business trips, it is essential to tender proof of business driving, which does not matter if you are going by the standard deduction route.

One also needs to show the amount paid for business trips, alongside the records like receipts, canceled checks, etc. Typically, you need a record of:

  • The vehicle’s cost with any improvement 

  • The date of the commencement of the use of the vehicle for business

  • The entire mile for the year

  • Mileage for every business use

You need a record of the date you started using the car, the business destination, and the purpose of the business for every expense. It is important to note that your record for business driving needs to be:

  • Complete with all information like location, date, actual expense, business purpose 

  • Accurate with a record supporting all expenses

  • Timely, at the expense’s time, not later

We recommend using a business driving app if the team does much business driving to make it easy to track your expenses.

 

Business Driving Expenses that are Non-Deductible 

A deduction for business driving is not possible in the following conditions:

  • Using the car Personally: there must be an adequate distinction between business and personal use of the vehicle, even if it is your personal or business vehicle. You cannot deduct personal expenses. 

  • For expenses related to commuting  - going to work and back from home

  • Using the vehicle to advertise, for instance, putting a sign on the car and driving about.



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