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How to Deduct Business Car Expenses for Tax Purposes
Car expenses can be a significant business cost for most business and especially so for small businesses. However, when it comes to deducting allowable expenses for your business taxation, various factors come up. The government has provided various guidelines that govern deductions for car-related business expenses. The following tips are detailed below:
Business Only use
The government enables the vehicle expense deductions applied to business only use. If you use your vehicle for both personal engagements and business, you will need to assign the business expenses first prior to making deduction. Travel involving the home and place of work is recognized as personal use and this mileage will not be deducted while claiming the car business expense. You can calculate what number of the car mileage is perfect for personal use and use the percentage to determine the vehicle expenses. This really is one area that the IRS places keen scrutiny and for that reason, you will have to be cautious when allocating the vehicle expenses.
Depreciation Expense
The major car expense that’s allowable for tax purposes may be the depreciation element. The government provides detailed guidelines regarding how to depreciate the value of the vehicle with time for purposes of taxes. The depreciation procedure depends on the weight and value of the car.
Huge Tax Break for Cars Over 6,000 pounds
For cars that weigh over 6,000 pounds, the government allows for full depreciation in the newbie of purchase. You can therefore, deduct the entire purchase price of the car before paying taxes. When the deduction from the car costs generates a company loss, you can offset the loss against other incomes or carry the tax liability forward towards a tax refund. This is a huge tax break that is worth consideration for anyone seeking to purchase a car for business purposes. Most auto producers including General Motors, Ford, Toyota, Honda, Mercedes Benz, Jeep, and Nissan all possess a vehicle weighing over 6,000 pounds that qualifies for this full depreciation tax break.
Depreciation for Other Cars
For cars that weigh below 6,000 pounds, the depreciation is done over several years. For the cars priced over $15,300.00, the depreciation allowed in 2010 is $11,060 irrespective of the buying price of the car. The cars are then allowed a further depreciation deduction for an additional 5 years until 2015. However, cars purchased for $30,625.00 and above may have higher allowable depreciation deduction for 2011 to 2015 when compared with cars that were priced between $15,300.00 and $30,625.00.
Other Allowable Business Car Expenses
Besides the depreciation expenses, the government also allows for the deduction of other car expenses such as car maintenance, insurance, gas, and then any other expense that’s for business purpose. A business has two options for reporting these other non-depreciation car expenses. The business can opt to deduct actual costs incurred or it can choose to deduct 51 cents for every mile covered. However, used, while using actual costs will come to raised car expenses and therefore, a larger deduction, aside from more fuel-efficient vehicles for example hybrids. You could calculate both options and see which one gives you more deductions.
Car Hire
For companies that hire cars, the government enables a deduction of the leasing price and also the deduction of gas and all other car expenses. However, the personal-business use rule will also apply for leasing and if the car is used for both business and personal purposes, you will need to subtract the personal-use costs before applying the business-use expense deduction.