A lot of small business owners from the Richardson and Plano TX area that come into our office have questions on the use of their Auto for business on their tax return. Questions include: What can I deduct? Lease or buy? What miles count? Here are some general rules you need to know to make sure you get every deduction allowed on your auto use!
First, you need to understand that the IRS allows you to choose between two options when it comes to your auto.
- You can deduct the business miles driven at the IRS rate for that year OR
- You can deduct actual costs such as gas, repairs, insurance and depreciation multipled by the percentage of business to total miles
With either method, you must know the number of business miles you drove.
If you want to use the standard mileage rate for your vehicle, you must choose to use it in the first year the car is available for use in your business. In later years, you can choose to use either the mileage rate or the actual rate. However, if you choose to use the actual rate in the first year, you must stick with the actual method for the reminder of the use of the vehicle.
You also need to know that a mileage log is required in order to get the deduction. Since we covered this topic in our previous blog, I won’t spend too much time here but this includes the date traveled, starting odometer reading, ending odometer reading, and business purpose. You are allowed to recreate the log using your calendar and receipts.
One of the top mistakes business owners make is tracking miles driven from their home to work. These miles are called commuting miles. You can only count commuting miles IF you have a home office and qualify for a home office. If you don’t have a home office, those first miles to work are NOT deductible.
I have had someone tell me that they want to deduct their auto 100% because they have a business sign on the vehicle. They said they see this as advertising. Sorry…the IRS’ rules don’t agree. You can deduct the cost of the signs, but the auto rules are the same (the percentage of business miles.)
Know the auto rules so you know what is expected of you! Check out IRS publication 463: https://www.irs.gov/pub/irs-pdf/p463.pdf. Understanding the rules will help you get every auto deduction allowed.
If You Need Help
If you have questions on the Business Use of Auto or other tax questions, call us at (972) 821-1991 or email firstname.lastname@example.org with any questions.
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