What’s the best way to claim your business auto expenses on your tax return? It depends. The first year you put the vehicle in service, you have a choice between two methods. You can use the actual expenses method or use the standard mileage rate. Once you have made the choice, you have to stick with it for that vehicle. So, it’s a good idea to carefully look at both methods when you get a new (or used) car. Both methods require that you have tracked your business and personal miles.
Using the Standard Mileage Rate
Each year, the IRS sets a standard mileage rate. For 2016, it was $.54 per mile. So, if you drove 10,000 miles for business in 2016, you would get a $5,400 deduction. The standard mileage rate includes all expenses associate with your vehicle except parking and tolls. So you can’t also deduct gas, maintenance, auto insurance, depreciation, etc. This is a fairly generous rate, so unless you have a real gas guzzler or a vehicle that requires frequent, costly maintenance, the standard mileage rate is often the best choice.
Using the Actual Expenses Method
The main advantage to using the actual expenses method is the ability to depreciate your vehicle. Vehicle depreciation is based on the purchase price of the vehicle and the type and weight of the vehicle. Some vehicles can be written off in full the year of purchase, while many other are subject to 5-year depreciation with limitations each year. Without going into all the depreciation rules, suffice it say the depreciation can be significant. When you use the actual expenses method, in addition to depreciation, you can also write off all other expenses associated with the vehicle, like gas, maintenance, insurance, etc. If you drove the vehicle for both business and personal use, the deductions are limited to the business use percentage. For instance, if 75% of your mileage was for business, then you can claim 75% of the depreciation and other costs.
Still curious? The Harding Group can help you plan your deductions!
If you can’t seem to decide how you should be deducting your auto expenses, trust the professionals at the Harding Group. Unlike other accounting firms, we never charge you for emails or phone calls and strive for open communication with our clients. Whether you are interested in business advising, tax preparation, bookkeeping and accounting, payroll services, QuickBooks training, or retirement planning, we have the expertise and years of experience to help. If you are ready to take the stress out of taxes, contact us online or give us a call at (410) 573-9991 for a free consultation. For more tax tips, follow us on Facebook, Twitter, Google+, YouTube, and LinkedIn.