Deducting Personal Car Expenses For Small Business Driving
55% of small business owners need to use their own vehicles to conduct business and serve their customers, according to a recent Manta survey. Regardless of the type of business, your operations at some point may require driving. For instance, you may need to make deliveries, attend meetings, or visit customers. Business owners and employees who drive while running the company’s errands are allowed to deduct these expenses, regardless of whether they use a personal or business vehicle. These expenses include licensing, gas, repairs and parking fees, which must be business-related and well-documented to be deductible.
Employees who use their cars
Some employers refund employees for the cost of using their own cars or trucks while others do not. IRS does not allow you to file for deductions if your employer paid you for a particular expense. However, you are eligible if your employer did not reimburse you. To be considered, you must be able to prove that you paid for these expenses with receipts, time stamps and proof of miles driven.
The IRS provides two methods of deduction namely Actual Expense Deduction and Standard Mileage Deduction. While what you use depends on allowances and limitations, the latter is easier and more preferred by small business owners. It works by multiplying the miles covered for the year by the rate for that particular year and using the result on your appropriate tax forms.
Record-keeping for taxes
Keeping records is paramount if you wish to claim deductions for your business driving expenses. Your documents must be complete, showing all information including the location, date, mileage, actual, and business purpose. To achieve the much-needed accuracy, remember to include backup files that distinguish between personal and business expenditures.
Additionally, these records must be clear and timely, meaning that you should file the necessary documents in real time and not later. It is essential to use a business tax advisor who will help you capture all the fine details, to ensure that your records are in harmony with IRS requirements. Also, there are online resources that can guide you to file the necessary papers correctly.
Even if your business is situated in an area with excellent public transport, there will always be business travel. Always remember to distinguish between business and personal driving needs, such as commuting. You might transport business items while commuting, but that does not make the expense deductible because you are primarily using the car to get to work. To increase eligibility, American express advises using vehicles that have good fuel economy and efficient technological advancements, such as hybrid cars which are already common in the market.