Business Use of a Vehicle Expense
One of the most common questions I am asked in my practice as a tax attorney is “How do I write off my car?” Sure, most of you may be thinking that this seems like a basic question for a tax attorney to deal with, but nothing is too basic when it comes to the tax code. Because I get asked this question so often, I have decided to write a blog post discussing the deductibility of our automobiles and how to make sure you can prove it to the IRS. In today’s fast paced environment, it is almost essential that we have a vehicle to operate ourdaily lives. Whether it’s for work, to pick up the kids from school, or occasionally to use for making money, we typically cannot go throughout our daily lives without a vehicle at our expense. Most of us wake up early in the morning, get dressed, watch a little news (or whatever’s on that early), and go to the garage to get in our car and drive off to work. Now before you get too excited about what you“think” I’m saying, I’m not. Driving to and from work is NOT deductible. It’s called commuting, and commuting miles are determined to be personal use for Business Use of a Vehicle purposes.So what is deductible? Any time you use your personal vehicle to get from the office to alocation off site, for business purposes, the trip to and from that location is deductible, or includable in your business miles. Let’s use an example to illustrate this. Let’s say Bob is a salesman, selling widgets to customers within the city of Las Vegas. Most of his sales are conducted online but, occasionally, Bob’s customers would like to meet him face to face to see who they are buying their widgets from. If Bob were to get in his personal vehicle and drive out to his customer’s office for a meeting, the trip to the customer and back would be included as part of Bob’s business miles. Bob would then use those business miles to ultimately determine what his deduction would be on his return.
Standard Mileage Method
There are two methods a tax payer may use when determining the value of their vehicle’sbusiness use for deduction purposes. The first method is the standard mileage rate, which is multipliedby the amount of business miles driven for the year and then deducted on your return as an expense.The standard mileage rate changes from year to year but for 2018 it is 54.5 cents per mile. In order toclaim the standard mileage rate, you must own or lease your car and:1) You must not operate five or more cars at the same time, as in a fleet operation,2) You must not have claimed a depreciation deduction for the car using any method otherthan straight-line,3) You must not have claimed a Section 179 Deduction on the car (I’ll explain in anotherpost),4) You must not have claimed the special depreciation allowance on the car,5) You must not have claimed the actual expense method for a car you lease, and6) You can’t be a rural mail carrier who received a qualified reimbursement.
In order to use the standard mileage rate, you must choose the standard mileage rate in the firstyear the car is available for use in the business. Otherwise, you are stuck with the next method we willtalk about.
Actual Expense Method
The second method for deducting business use of your vehicle is the actual expense method.This method still requires that you keep track of all your business miles and personal miles throughout the year. The best way to accomplish this is to mark down your odometer reading at the beginning of the year, track all your business miles in a business mile log (this can be done much easier on your phone through a business mile tracker app), and then marking your odometer reading at the end of the year. Then you will simply take the total miles driven for the year and divide the business miles from itto determine your business use percentage for your vehicle. Once you have the business use percentage, you will take all the expenses you incurred throughout the year to operate and maintain you vehicle (gas, oil changes, new tires, fix the engine,etc.) and multiply the total of those expenses by the business use percentage to determine the amountof your deduction on your return.
2018 Tax Cuts and Jobs Act
Prior to 2018, the business use of your vehicle was deductible by employees who use their personal vehicle in fulfilling their job responsibilities and are not reimbursed by their employer.However, because under the 2018 Tax Cuts & Jobs Act the opportunity to deduct unreimbursed employee business expenses was done away with, you can no longer deduct these personally. The best option to get these miles paid for under the new tax law is to be self-employed or to have your employer reimburse you at the mileage rate allotted for business miles.
Proving the expense
When trying to prove the expense to the IRS, they will want to see your business miles log to determine what your business miles were for the year. In that log you can record the odometer readings at the beginning and ending of the year as well. Through your mileage log the IRS will be able to determine your business miles for the year as well as the amount of the deduction you could have taken through the standard mileage rate method. If you use the actual method, be sure to keep all your receipts related to the maintenance and use of your vehicle as well as keep a business mileage log. This way the IRS will be able to apportion the business portion of all the expenses you incurred. Remember,the deduction only works if you can show the IRS how you got there.
Don’t miss out on keeping money in your pockets during tax season, call Day & Associates for a consultation today at 702-710-8233.