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Spotlight on Sponsors: Make the Most of Your Vehicle Expense Deduction

By on August 23, 2021 0

Tracking your miles every time you drive somewhere for your business can get pretty tedious, but remember that keeping track of your vehicle’s expenses and kilometers driven properly can result in a significant reduction in your taxes.

Here are some tips for getting the most out of your vehicle expense deduction.

  • Keep track of mileage and actual expenses. The IRS typically allows you to use one of two different methods to track vehicle expenses – the standard mileage rate method or the actual expense method. In one year, the mileage method may result in a higher deduction, while the actual expense method may be higher in a subsequent year. But you won’t know which method results in a higher deduction unless you track both your mileage and actual expenses.
  • Consider using standard mileage the first year a vehicle is in service. If you use standard mileage the first year your car is in service, then you can choose which expense tracking method to use in subsequent years. If you initially use the actual expense method the first year your car was put into service, you are required to use the actual expense for the duration of that car’s use in your business. For a car that you lease, you must use the standard kilometer rate method for the entire rental period (including renewals) if you choose the standard kilometer rate in the first year.
  • Don’t forget the depreciation! Depreciation can significantly increase your deduction if you use the actual expense method. For heavy SUVs, trucks and vans with a manufacturer’s gross weight rating of over 6,000 pounds, additional 100% depreciation is available until the end of the 2022 tax year if the vehicle is used. more than 50% for commercial purposes. Regular depreciation is available for vehicles under 6,000 pounds with annual limits applied.
  • Don’t slack off in keeping records. The IRS requires that you track your vehicle’s expenses as they occur (this is called contemporary record keeping). You are not allowed to wait right before filing your tax return to compile all of the information needed to claim a vehicle deduction. Whether it’s a physical notepad you put in your glove compartment or a mobile phone app, choose a method of tracking your mileage and actual expenses that’s best for you.

Please call if you have questions about maximizing your business vehicle expense deduction.

– By Nancy J. Ekrem, CPA
Managing shareholder
PC of the DME CPA group
Certified Accountants and Business Consultants
[email protected]

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