E. B. White, author of Charlotte’s Web and Stuart Little, once said “Everything in life is somewhere else, and you get there in a car.” It only makes sense that owning such an indispensable item would have some tax implications.
For the non-business owner, auto ownership only helps the bottom line if the taxpayer itemizes by filing Schedule A. On this form, vehicle (including motorcycle, boat, and trailer) property taxes can be deducted. Mileage for charity work can also be deducted, but only at a rate of 14 cents per mile. Medical-related mileage can be deducted, assuming the threshold for medical expenses has been met, at a rate of 21 cents per mile.
To deduct either charity or medical mileage, the taxpayer must keep thorough records of all eligible trips. Records should include the date, purpose, starting and ending points, and miles driven for each excursion. Because so few taxpayers benefit from itemizing, most do not go to the trouble of keeping up with charity and medical mileage.
Business owners, on the other hand, can get several benefits from using a vehicle in their ordinary course of work. While it’s usually not true that simply owning a business makes all auto expenses a business write-off, careful record-keeping may allow a self-employed taxpayer to deduct significant automobile costs.
There are two ways to track expenditures: the first, called the actual expense method, requires all receipts for gas, maintenance, and related outlays be kept. The second method, called the standard mileage method, is easier and often results in a larger deduction. For either method, the taxpayer must keep detailed mileage logs with the same information mentioned for personal mileage. There are several free or low-cost apps available that track the necessary data.
The actual expenses method allocates expenses between the total business and personal miles driven during the year; the standard method deducts the mileage rate set by the IRS (currently 67 cents per mile for the total business miles driven). Regardless of method chosen, commuting miles are not deductible; only miles driven from the first workplace of the day to the last count. In other words, a business owner who drives to their place of work, then goes to the post office and office supply store midday, then returns to the workplace for the rest of the day, may deduct the mileage from the company to the post office, to the office supply store, and back to the office. Home to work (or work back home) is commuting. A legitimate home office may expand the mileage that can be deducted; talk with us about this option if you believe it can apply to you.
Armed forces reservists also have special rules about taking mileage when they are required to go more than 100 miles from home to their duty station. We’d be happy to talk with reservists about the rules for this deduction.
The rules can be confusing, and there is a lot of incorrect advice about business expenses out there, so contact us if you need more information. As long as we continue to want to go to somewhere else, we will continue to incur vehicle expenses, so we might as well take advantage of any tax savings that may come with our driving.
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