Baby, you CAN’T drive my car…because I need the miles. Happy Tax Tip Tuesday! Today, we are talking about maximizing the deduction for your business vehicle expenses. This is a deduction beneficial to freelancers, ride-share drivers, and anyone who has a home office or drives for their job.
How to maximize deductions for your business vehicle expenses
If you are self-employed and drive your car for your business, we recommend deducting your vehicle expenses to lessen your tax burden. To deduct the costs associated with your vehicle used for work, you can use the Standard Mileage method or the Actual Expenses method. You will have to determine which one of these provides the largest tax benefit because you cannot take both.
Those who work in an office outside of the home may not deduct miles driven to and from work. This is considered commuting and is not business-related. Here are a few examples of qualified mileage deductions:
- A ride-sharing driver (for companies such as Uber or Lyft) can deduct miles driven while looking for the next passenger, as well as during trips.
- Photographers or freelance graphic designers may deduct miles when they are driving to each of their photoshoots or client meetings.
- A pool cleaner can deduct miles when they are driving to each of their client’s houses.
The most commonly used method for calculating vehicle deductions is standard mileage. The federal mileage rate for the 2019 tax year is 58 cents per mile (up three and a half cents from the rate for 2018) for miles driven for business. If you’re taking the standard deduction, all you need for tax purposes is your mileage log.
Standard mileage requires drivers to keep a detailed log of all miles driven for business, including date, start time and end time, the business activity involved and the odometer readings. You are eligible to count all miles driven for business-related purposes.
Choosing standard mileage means you cannot deduct any other expenses related to your car. If you prefer to deduct other items, you must use the Actual Expenses method. To make sure you are getting the highest return, track every expense related to your vehicle, so you can compare actual expenses to mileage costs, then determine which is greater.
Tip: For help with tracking miles, the app mileIQ is a great tool to organize trips.
When deducting actual expenses, you can only deduct the portion associated with business use. For example, if you drive your car for both business and personal use, you may only deduct a portion of your expenses. Keep in mind, you still must maintain a mileage log in alignment with the same requirements for the standard mileage method. This is how the IRS determines your percentage of actual expenses that are deductible. In addition to the log, you must keep track of all of your expenses that pertain to that vehicle.
Some of the items you can include in your deduction:
- A portion of your lease payment (if you are leasing your vehicle)
- Auto loan interest (if you are financing your vehicle)
- Auto insurance
- Gas and car washes
- Maintenance and Repairs (oil changes, replacing brake pads, new tires, etc.)
Remember to save all of your receipts and keep accurate records so you have everything you need when it comes time to make a decision. Consult with your CPA on the best option for you.
Verdant is a full-service CPA firm with experts to help you make the best money-saving decisions for you and your business. Contact us today for a free consultation.