A shocking 27.9 million small businesses were launched in the US in 2010; 18,500 of those firms had 500 employees or more. This number has continued to grow in the recent years with the rise of internet businesses and programs like Kick Starter. If you happen to be one of those millions of people, you likely use a vehicle for business purposes and/or transportation to and from work. Just as you separate your personal expenses from business dues, you should also keep business vehicles and usage as well as their corresponding expenses separate from your personal car affairs. In most cases, this allows for a tax break, but there are a few things to consider first.
Taxable Business-Related Expenses
Carefully consider what is legitimately a business expense. If you drive a personal vehicle for work purposes as well as personal ones, you’ll need to keep track of the miles accumulated from work commutes in order to deduct them on your taxes. This works a bit differently to claiming the vehicle itself as a deduction, which can only be done if it is used solely for business. Instead, when you claim mileage, the government attributes a monetary amount per mile that they feel is reasonable. You can also choose to file with the actual cost that you incurred, but typically the former is the better option. If you keep a vehicle separate from personal use and opt to deduct the car itself, refer to your business’s financial statement, as it will show only your business assets, and nothing personal will accidentally get claimed incorrectly.
What About Property Tax?
The property tax for a business vehicle is also figured differently to how a personal car is accounted for. The title of your vehicle and your local government will determine how it is taxed. Your insurance is also dependent on titling to dictate whether it’s for business or personal use. If you leased a business vehicle and paid a property tax up front (although many companies offer to cover this cost for you to sweeten the leasing deal and entice more clients), this should be able to be carried as a deduction on your taxes for that year. Keep in mind, once again, that in order to deduct it, it must be used exclusively for business
Vehicle Buying vs. Leasing
Leasing a business vehicle is also an option, in which case you can not claim the car itself as a deduction. Instead, you’ll claim the payments made on the lease. These payments are usually fully deductible, as they incur an immediate loss. Do a bit of research before committing to purchasing over leasing. Sometimes leasing offers more of a tax-advantage, but of course, this is dependent upon the vehicle being leases, compared to the vehicle being considered for purchase
Carefully consider all of these aspects before purchasing or leasing a business vehicle and before filing your business deductions. A financial advisor or accountant can help you sort through all of the information and your options to find what works best for you.
