Don’t Forget That Business Car Deduction

There are two ways to approach your business car deduction, but make sure you keep solid records

  Here’s how to write off optimized deductions for business vehicles. Choose the right accounting method to maximize savings:  

• • If you use your car for business purposes, you are eligible to deduct a portion of your auto expenses using one of two different methods.

 

• • The first method deducts a standard rate per mile driven, whereas the other deducts a prorated percentage of all auto expenses incurred (lease, gas, insurance, maintenance, etc.).

 

• • Whatever method you choose, be sure to keep detailed records to substantiate your claim.

  For many business owners, using their car is a necessary part of doing business.  Between the commute into the office, visits to client sites, or traveling to meetings with prospective customers, a vehicle can log a significant amount of use for business purposes.  Luckily, the IRS allows businesses to deduct auto expenses using one of two different methods. First business car deduction method The first option for deducting auto expenses is the mileage method.  In 2014, the standard mileage business rate allowed by the IRS is $0.56 per mile.  That means that for every business mile traveled in 2014, the business can expense 56 cents for automobile use. In addition, the driver would also get to deduct any parking and tolls along the route.  This method requires that the driver keep an accurate log of miles driven for business purposes to provide substantiation in the event of an audit. Second business car deduction method The second method – which usually yields a higher deduction – is to deduct all auto expenses multiplied by the percentage of business use of the car. So if a business owner, for example, uses his car for business purposes five days a week, the business may be able to claim prorated auto expenses of 5/7, or 71%, of the total expense of the car.  (Note that it is still important to keep a travel log to prove the percentage of business use.) Since in the second method the deduction is applied to all expenses associated with the car – including the auto lease, gas, insurance, repairs, maintenance, and other expenses – it can result in a significant deduction for the business. More records will need to be kept to log all of these associated expenses, but for most businesses, the extra effort will be well worth the payoff. Still not sure? Not sure which method is best for your business?  It’s never a bad idea to speak to your tax professional to determine the optimal strategy for your company.  And whatever method you choose, remember to always be diligent about your record keeping. Other tax related articles: Starting Your 2013 Small Business Taxes? Keep Eyes Open For Depreciation & Write-Offs Questions, comments? We’d like to hear from you in the comments section below or ask@latinbusinesstoday.com The purpose of this article is to provide general best practice guidelines. This article is not written as legal or tax advice directed at the particular facts and circumstances of any specific person or business. We recommend you consult your local CPA or attorney to ensure your unique and specific needs are fully addressed.