Posted by Fred Lake

How to Maximize Tax Deductions for the Business Use of Your Vehicle

How to Maximize Tax Deductions for the Business Use of Your Vehicle

In estimating the business use of a vehicle, there are two methods. One needs to calculate the vehicle expenses using each mode and select the most significant deductions approach.

 

The Actual Expense Method 

The actual expense approach is a factor of the actual expenses incurred while operating the vehicle. This will include deductions like:

  • Change of oil

  • Purchasing gas

  • Insurance

  • Purchase of tire

  • Washing your vehicle 

  • Vehicle depreciation, etc. 

One can only claim a part of the expense that applies to using your vehicles for business. To estimate this, one needs to know the number of miles driven specifically for business and the ones for personal purposes. This vital data will be available on your dashboard, alongside the year-end Annual Summary sheet. 

To calculate the percentage of your vehicle's use, you will divide the entire business miles by the total number of miles the car was driven in the year. 

  • If your entire annual summary reveals that you drove 6000 miles online, while the odometer shows that all you drove was 12,000 miles, divide 6000 by 12,000

  • You will get 50%, which is the business use of your vehicle. 

To get the actual expense deduction, you will multiply the entire actual expense by this percentage.

  • For someone that has an actual expense of $8,500, for instance, multiply it by 50%

  • The deduction will give $4250

The deduction is enormous because the actual expenses are much.

 

Standard Mileage Method 

The second approach to estimate the business use of your vehicle is the standard mileage method. While you will still need to keep track of both the business and personal miles you drove, only the business portion is relevant in estimating the deduction. 

To estimate business deduction for business use of your vehicle via the standard mileage method, multiply the amount per mile allotted by Uncle Sam by the business miles. 

Theoretically, both approaches of estimating the business use of your vehicle should give approximately the same result.

 

Important Reminder 

Even though vehicle expenses are essential to bring down your tax bill, there are other business deductions. Typically, you will use IRS Schedule C, Loss or Profit from business to estimate the net business income, which has many types of business. 

These are everyday expenses for a typical rideshare business:

  • A wireless plan

  • Parking fees

  • Tolls

  • Refreshment and snacks for passengers 

  • Phone 

Like the mileage approach, one can only deduct business-related expenses. For items used for both personal and business, you will have to estimate the percentage used for each. 

  • For instance, if you use the same mobile phone for both business and personal use, it is essential to estimate the percentage of each use that applies to the business.

  • What you get from the above calculation will apply to the business income.

Some Lyft drivers have a phone dedicated to business alone to keep tabs on their expenses efficiently. It is easier to deduct the entire costs associated with the phone and not bother about the hassle of percentage calculation. However, it is essential to save the whole bills, receipts and other correspondence related to the business expense. Without the proper documentation to support your claim, Uncle Sam can cancel any deduction you make. 


FOR MORE INFORMATION ON HOW FRED LAKE CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


THANKS FOR VISITING.

Fred Lake
Contact Member