Own a business? Drive a car? Use that car for business? If so, you can deduct a portion of that vehicle's cost from your taxes! This is a super well-known deduction, but many business owners still forget to take it. Don't make the same mistake! Deduct your vehicle from your small business taxes, and enjoy your savings!
Who can deduct their vehicle from their taxes?
Anyone who owns a business or is self-employed and uses their vehicle for work can deduct at least a portion of it from their taxes. Unfortunately, employees can't take this deduction, even if their employer doesn't reimburse them for business-related mileage.
Just a side note about buying a new car. Lots of business owners wait until the very end of the year, buy a new car for business, and deduct the cost from their taxes for the savings. While this is technically allowed if at least half of your vehicle use is for business, be careful. Remember, if you weren't going to buy it at full price, buying it for less isn't really a deal. You're still spending money you could have held on to!
How to Deduct Your Vehicle From Your Small Business Taxes
There are actually two different ways to calculate your auto deduction: with your mileage or with your vehicle maintenance cost.
OPTION 1: Mileage
To calculate your deduction with mileage, keep track of all your business-related miles. You can keep track by hand (which can be a pain, in my opinion) or use an app like Quickbooks.
At tax time, multiply your total business-related mileage by that year's mileage rate, which you can find on the IRS website.
Let's use 2019's rate as an example:
The 2019 mileage rate was $.58 per mile.
If you drove 5000 miles for business, your deduction would be...
5000 X .58 = $2900
This is without a doubt the more accurate of the two options for calculating your auto deduction. Plus, if you use a mileage tracking app, it's really easy!
OPTION 2: Maintenance
To calculate your deduction with your vehicle maintenance costs, you'll first need to estimate what percentage of your vehicle use is for business. This is the tricky part. I recommend tracking everything for a month or so and using that ratio to calculate your percentage.
At tax time, multiply the total cost of your vehicle expenses (gas, car payments, insurance, maintenance, etc.) by this percentage. For example:
If 30% of your total vehicle usage is for business and your vehicle expenses for the year
were $5000, your deduction would be...
5000 X .3 = $1500
While it's a bit more difficult to calculate your deduction this way, it does prevent you from needing to track mileage. Instead, just save and track all your vehicle-related receipts.
The best way to save on your taxes? Don't miss any deductions!
There's no better way to snag all those sneaky deductions than keeping a close eye on your business finances. Check out my signature course Be Your Own Bookkeeper and learn everything you need to manage your finances with confidence and beat the tax-time nerves.
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