If you own a vehicle that you use for your business, you may be eligible to deduct your operating expenses from your taxes.
Here’s how it works:
- You must own or lease the vehicle.
- You must prove that you use the vehicle for your work or business.
- You must use an itemized deduction model for your vehicle expenses.
These are just some basic guidelines that suggest you may be eligible for operating expense deductions. You’ll want to consult with a professional tax preparer to be sure you qualify before any deductions are taken.
Once you’ve verified that you do, in fact, qualify for this deduction, there are two methods that you and your preparer may use to deduct your expenses:
- Standard Mileage Rate: This method uses the current market’s average costs for your expenses, such as gas and repair prices. You can also use business-related parking and travel expenses on this plan. The downside is that this method uses the average cost, not the exact cost, so if you paid above-average prices, you may be losing out. However, if you didn’t keep every receipt or document your expenses down to the last cent, this may be the best route for you to take.
Be mindful that this method must be used the first year your vehicle is used for business, otherwise you cannot use it in subsequent years.
- Actual Expenses Method: For this method, your deduction is calculated based on your actual costs for vehicle operation. You must keep all of your receipts and have the paperwork ready. Then, you and your tax preparer will calculate your total vehicle operating costs and then determine which portion of your operating costs are related to business use.
Not sure which method is right for your vehicle operation deductions? Call Taxation Solutions, Inc. for expert tips and advice!