Commuting is a fact of life for most entrepreneurs. You drive to work, you meet clients, you have a lunch appointments with investors and you go to the bank, to name a few daily trips.
The point is, entrepreneurs may spend enough time driving around to call their car a second home.
And if you can write off mortgage interest for your house, then sure enough, you can save even more money by writing off vehicle expenses.
The Section 179 deduction in the U.S. Internal Revenue Services’ Tax Code offers one way to do this. It allows small-business owners to write off vehicles weighing more than 6,000 pounds that were purchased through equipment leasing and financing.
However, Income.com knows that’s not the only route entrepreneurs can take to generate cost savings through car expense write-offs. If you’re just scratching the pavement and not looking for more chances to write off vehicle-related costs, then you’re liable to get left in the dust of competitors who are trawling tax codes for each and every opportunity to save.
The majority of deductions and write-offs lie outside the initial purchase, maintenance and repair costs associated with cars. You’ll have to dig deep and actually expend some effort to find ways to write off expenses through accrued mileage, loan interest, parking fees and tolls.
The IRS allows self-employed individuals to write off 55.5 cents per mile driven for business purposes. What is not included, however, is personal use of a vehicle, like driving to and from work and picking up little Johnny or Janey at soccer practice.
This write-off is a crucial asset to entrepreneurs who rely on car travel for any number of business reasons. Entrepreneurs are wasting money if they continue to be sloppy about tracking mileage.
It’s a simple process if you put enough thought and effort into it. Step one is to start a mileage log, as you’ll need the total number of miles driven during the year and the total number of miles driven for business. Every day, write down the odometer reading at the start of the morning, the purpose of any business trip via car, its subsequent mile count and the odometer reading at day’s end.
Be vigilant to distinguish personal use from business use, because entrepreneurs who try to pass off even the slightest discrepancy will undoubtedly land themselves in hot water with the IRS and likely incur further costs.
Other vehicle expenses
There is a plethora of other write-offs entrepreneurs can take advantage of for business use of a vehicle: gas and oil, tires, registration fees and taxes, insurance, garage rent, tolls and parking fees. All of these items provide viable avenues for savings through write-offs, but again, entrepreneurs must keep airtight records of any such expenses if they want to reap the benefits. This is especially true since many of the second-tier expenses rely on your mileage records.
TurboTax lays the scenario out like this: If an entrepreneur spends $3,000 on oil and repairs for the year, $500 on fees and taxes, and loan interest and insurance totaled $1,500, then the actual expenses are $5,000. Assumed total mileage was 18,000 and documented business miles amounted to 16,202, then the business-use percentage is 90 percent.
And if you use the actual expenses method, you can deduct $4,500 (90 percent of $5,000) or $8,992 (16,202 times 55.5) using the standard mileage rate. Again, it’s of the highest importance that entrepreneurs explore every nook and cranny of vehicle write-offs, or else they leave money on the table.
Income.com knows entrepreneurs canvass the tax code to find write-offs and deductions, however, it often finds entrepreneurial efforts to write off vehicle expenses to be lacking. You need to keep traceable and verifiable records, and you need to treat each and every business use of a vehicle as a prime opportunity for savings.