The Business Use of Your Car…Make Sure You Don’t Leave Money on the Table.

The deduction for using a vehicle in your business may seem straightforward, but there are a few things the IRS requires that you may not know.  There are different requirements for owning, leasing and determining the amount of usage for the business.

If you use the standard mileage deduction, you can only use it for no more than 4 vehicles.  In 2018, the standard mileage rates are as follows: Business is 54.5 cents a mile; charity is 14 cents a mile and medical or moving is 18 cents per mile.

Carol has a business as a “wedding day” cosmetologist.  She travels to the wedding location to provide hair styling and make up services to the bride, bridesmaids and the mothers.  She has a loan from the bank for this car and uses it for both personal and business use.  Carol can only deduct the business use portion of the vehicle on her Form 1040, Schedule C or Form 1040, Schedule C-EZ.

If Carol decides to use the standard mileage rate, she must put the vehicle to use in her trade during the first year of her business or during the first year the vehicle was available.  The record keeping must be accurate, which means that the mileage must be recorded at the beginning of the year and all mileage used for business must be documented with detail.  There are several Apps available just for this purpose and can provide the documentation the IRS requires.  She will also be required to calculate the depreciation of the car using the Modified Accelerated Cost Recovery System (MACRS), as is required of all vehicles put into use after 1986.

After 2 years, Carol decides to use the vehicle solely for business purposes and wants to deduct all expenses for the car.  She will need to keep records and receipts for gas, oil changes, any maintenance repairs, tires, state and local fees to include registration, auto insurance, road-side assistance and depreciation.  Per Topic Number 510; Carol will need to change from the MACRS method of depreciation to the straight-line method for the remaining useful life of the vehicle.

Carol could have also chosen to lease the vehicle that she was going to use in her business.  In this scenario, she would have to use the standard mileage rate for the entire lease, to include any renewal periods associated with the car.

Whether Carol uses the standard mileage or the actual expenses, she can still deduct the additional costs of parking fees and tolls that are related to her business.

One last note to keep you out of trouble.  If Carol puts a decal, magnet or wrap on her vehicle to advertise her services, that doesn’t mean she can claim the mileage anytime she is driving.  Only the cost of the decal, magnet or wrap can be claimed.

The moral of this story is to keep accurate records of your vehicle expenses.  There could be money left behind if you don’t.

Contact Excerebus at info@excerebus.com or 407-988-5647 for assistance.

Categories: Tax Information

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