It’s not unusual for small business owners to use their personal vehicle for company errands and meetings. If you can afford it, buying a separate car for business use often entitles you to more tax benefits. There are a variety of tax laws that pertain to the use of your car for small business purposes you need to be aware of. If you don’t want Uncle Sam breathing down your neck, here are five correct ways to write-off your vehicle:
1. Electric Vehicles
If you purchase an electric vehicle, you will be entitled to a tax credit. You are permitted to claim this credit whether the car is used for business or personal use. What you need to be aware of, however, is that if you will be using the car for both purposes, you may also be able to claim the general business credit. Claiming more than one credit has limitations that you’ll need to research before you file.
2. Buying a Vehicle
When you buy a vehicle for any purpose, there are deductions that you can claim. It’s in your best interest to find out which of these deductions offers the biggest advantage as there are limits to the number of deductions that you can take. If you use the vehicle for personal and business use, you’ll need to calculate your deductions based on the amount the car is driven for business use. For instance, if you drive the car for business half of the time and for personal use the other half, you’ll only be able to deduct 50 percent of the limit.
3. Keeping Records
Uncle Sam doesn’t take you at your word, which means that you must keep written records of your driving habits once you start using your car for business purposes. You’ll need to keep track of how many miles you drive, the dates of your travel, the odometer reading, where you went and what you bought. Keeping a small journal in your glove box is often the most convenient way of keeping track of the information. Alternatively, you can purchase an app for your mobile device that will keep track of the distance that you’ve covered by utilizing your phone’s GPS.
4. No Cheating
Many people are under the mistaken impression that adding a bumper sticker, door magnet, or window clings to their car advertising their business makes all driving business use. Just because you are advertising doesn’t qualify your driving as business related in the eyes of the IRS. To be able to deduct your expenses, you must be driving the vehicle for a business related purpose such as attending a meeting, having lunch with a client, picking up supplies or dropping off packages. Taking frivolous deductions is a sure way to get audited by your favorite uncle.
5. Taxes are Deductible
When you buy a new vehicle, the state and local taxes that you pay entitle you to a write-off. The sales and excise taxes that are added to the price of your car can be deducted with certain limitations. You must fall within certain limits when it comes to your adjusted gross income and only taxes that are tacked onto the sticker price of the vehicle qualify. Additionally, you can only claim taxes added to a sticker price of $49,500 or less. This means that if you buy a $60,000 vehicle for your business and personal use, you can only claim a deduction on a portion of the taxes that you paid.
There are dozens of deductions that benefit small business owners and several are related to your vehicle use. If you own a small business, it may be in your best interest to consult with an accountant or professional tax preparer the first time that you file. You should also visit www.carinsurance.org.uk for up-to-date insurance information.