The vehicle deduction is one of the many tax deductions available to business owners, whether you own a business full time or just on the side.
If you have claimed the vehicle deduction before, chances are you have claimed it in terms of mileage driven for business purposes. Most business owners opt for this route.
Before taking the vehicle deduction on your tax returns next time, consider the actual vehicle expenses you incurred and compare it to the mileage deduction.
Uncle Sam allows us to opt for the deduction in two ways, by either claiming the miles we drove for business, or the actual vehicle expenses we incurred that can be attributed to the business.
If you drive a 4 cylinder Honda Civic, you are likely better off going the mileage deduction route. But what if you drive a 6 cylinder truck or a luxury SUV? Does it cost the same amount to run a larger, more expensive vehicle than a small four cylinder four wheeler?
As far as the Internal Revenue Service (IRS) is concerned, it doesn’t matter to them which route you go, so long as you can prove it if audited. As far as the tax payer goes (you), often times the tendency is to take the quicker path to completing the tax return.
Think about it, will your CPA / Accountant really spend the time and effort to ensure you get the most money back? It means more time wasted for them that leads to less clients they can service and therefore less in fees generated.
Here are just some of the cost components to consider when contemplating the motor vehicle deduction:
Notice the vehicle tax deduction is not part of this list. That is a separate deduction all together available on the sales tax you pay when you purchase a brand new vehicle.
The insurance on a luxury vehicle costs more than a standard vehicle. The fuel costs on a larger gas guzzler will cost more than a Honda civic. Maintenance such as oil changes and flat tires will definitely cost more for a luxury vehicle, especially if it is also large.
Will your Accountant care? Likely not. So don’t assume that taking the mileage deduction is the best vehicle deduction you can take, not if you drive a Cadillac Escalade no. Analyze your actual expenses and see if the actual expense deduction method makes more sense for you.
Just make sure you keep a good track record of expenses and mileage drive. The IRS requires you to log these expenses near the time of incurring them. You don’t need to fear an IRS Audit as long as your records are tight.
Readers: Which route do you take when claiming the vehicle deduction? Why? Has anything changed after reading this post? Read what the IRS has to say about taking the vehicle deduction.