There are millions of cars on the road across America every day. From SUVs to trucks to smart cars, we all have to transport ourselves to different places for various reasons. We also have to deal with the expenses associated with driving and maintaining a vehicle that can add up over time. If you spend time behind the wheel for business reasons, have you explored the tax deductions on vehicle costs that you may be able to claim when filing your taxes? Bert Seither, a small business advisor, explains how this deduction works.
The IRS offers a vehicle deduction that tends to be overlooked by small business owners and self-employed individuals who may be able to claim it. To qualify for this tax write-off, you must use your vehicle for business-related travel purposes. The IRS has put a few restrictions on what types of trips qualify when calculating this deduction. If you drive your car from a place of employment to another location to meet with a client or to participate in other business activities, this trip would qualify for the deduction under these rules. If you run a business out of your home and travel by car from your home to a separate location for business purposes, the expenses of this trip would also qualify.
The federal IRS tax code offers two different options you can choose from to deduct qualifying vehicle costs. One option is to claim the vehicle deduction according to the number of miles driven. The other way is to determine the actual amount of expenses you incur to use your vehicle. If you take the mileage option, the standard mileage rate for 2013 is 56.5 cents per mile driven. If you opt for the actual expenses route, you may include gas, oil changes, car repairs, maintenance, tolls, and insurance when determining how much to deduct. Bert Seither says it’s essential to explore both options to see which one would give you the largest potential deduction amount.
There are several professions in which driving is a big part of the work involved. Cab drivers, bus drivers, limo drivers, and truck drivers are just a few of them. Bert Seither warns, though, that in order to write off vehicle-related expenses on a tax return, you almost always have to be a self-employed individual, such as a small business owner or a 1099 contractor. Individuals who hold W-2 positions with an employer and use their own vehicles for activities that are part of their work are normally unable to deduct these costs. The caveat to this is that if your employer does not reimburse you for such expenses, you may be able to claim them as a deduction in the form of unreimbursed employee expenses on your tax return. The bottom line is that you should tread lightly with this deduction to ensure that you are fully qualified for it due to the various stipulations involved.