Did you know that if you have a motor vehicle and a business, you may have a tax deduction coming your way? It’s true. In many cases, you can deduct from your business profits the cost of buying, driving, and maintaining that vehicle. And if you use it exclusively or almost exclusively for work, you may be able to get the government to pay a good chunk of the expenses related to that vehicle (in the form of money you save on taxes).

That’s only fair. Every penny you put into driving to deliver product or perform a service for your customers is a penny out of your business profits!

In this blog post, Part 9 in our Small Business Guide to Reducing Your Tax Burden Legally series, we cover how it may be possible to claim a deduction on a qualifying car, truck and related expenses.

Two Ways to Claim Vehicle Expenses

In these United States, the Internal Revenue Code provides for two different ways to claim vehicle expenses:

• Actual expenses: You claim the business use percentage (BUP) of all expenses related to a vehicle, including fuel cost, auto insurance, lease payments (or loan interest and depreciation), personal property tax, repairs/maintenance (oil changes, tires, etc.), and car washes. For example, suppose you use a vehicle 75 percent for business and 25 percent for personal use, and your total vehicle expenses are $8,000 for the year. Your deduction would be $8,000 x 0.75 = $6,000.
• Standard mileage: You multiply the number of miles you drove the vehicle for business by the standard per-mile rate, which is 57.5 cents for the year 2020. For example, if you put 8,000 business miles on a vehicle 8,000 x 57.5 = $4,600. Using this method, you can also deduct the business use percentage of vehicle registration fees and taxes, vehicle loan interest, and tolls and parking fees. (Note: You cannot use the standard mileage method if you use five or more vehicles in your business, or you use your vehicle for hire; for example, taxi, Lyft, Uber, etc.)

Many small-business owners choose the standard mileage option because it’s so straightforward in terms of calculations and record-keeping. All you need is your odometer meter reading at the beginning and end of the year and a log of the number of miles you drove for business (which you should keep regardless of the method you use to calculate your deduction). You don’t need a receipt for every time you fuel up or take your vehicle in for an oil change.

However, using the easy method could cost you money. Every year, the American Automobile Association (AAA or more commonly “Triple A”) conducts in-depth research into vehicle operating costs. If you’re choosing to take the standard deduction for a vehicle that costs more than 57.5 cents/mile, could be losing money by not claiming your Continue reading… Continue reading… Continue reading…