No one likes to pay taxes, but they're a necessary part of existence. While a great accountant may be able to point this out to you, many people actually short change themselves every year when it comes to how much they owe and what their tax refund should be.
One way that people may be overpaying is through the use of their vehicle if it's done so for business purposes. The following overview will shed some light on which business uses of your car are tax deductible.
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Know the IRS's Classifications.
According to the IRS, the use of your car is divided into three different categories, which are:
- Personal use.
- Business use.
You can visit their website for more information at //www.irs.gov/publications/p463/ch04.html#en_US_2015_publink100033930
It's important to be aware of the different categories, as business use is the only one that is considered to be tax deductible.
When is Business Use Considered to be Tax Deductible.
The IRS considers business use to consist of traveling from one business destination to another. The main business trips that are tax deductible are:
- Traveling to/from one client to another client.
- Traveling directly from one job to another job (such as during landscaping).
- Traveling from your primary place of business to another location specifically for business-related reasons, such as making a deposit, picking up supplies, or going to a meeting.
- Traveling to a temporary work site from your home as long as the temporary work site is not your primary place of business.
- Traveling to a different location outside of your metropolitan area to a temporary work site that is not your primary place of business.
Some Exceptions to Be Aware Of.
Simply commuting from your home to your primary place of business and back is not considered to be tax deductible. However, there are some exceptions, which are:
- Having to take heavy equipment or materials to your place of business that is not part of your regular routine, such as having to drive your car to work to transport materials instead of taking the subway as you normally would do.
- Establishing your home as your primary place of business, meaning that you technically work from home, and traveling to any type of business destination or business-related place.
- Stopping on the way to your primary place of business to another business-related location before and doing the same on the way back home from work, thus making part of your commute tax deductible.
The Two Ways to Calculate Your Auto Expenses.
There are two main methods that you can use to calculate your auto expenses, but both of them require detailed record keeping on your part. They are the:
- Standard mileage rate: This involves simply providing the number of miles that you drove for business-related reasons, which equates to a set amount per mile (around 56 cents per mile).
- Actual cost method: This is a much more detailed method but can result in a larger tax deduction.
Regardless of which method you choose, you will need to make sure that you keep a record of the total number of miles that you drove during the year and the total number of those miles that were business miles.
Make sure to also ask your accountant to clarify any questions that you may have and to provide assistance.