We've all heard that there's no such thing as a free lunch, but when it comes to taxes, Uncle Sam sometimes picks up the tab - or at least a portion of it. If you're a car owner, you may be wondering, "Can I claim taxes on my car?" The answer is, as with many things tax-related, it's complicated. Let's break down some of the possible scenarios.
The possibility of claiming taxes on your car often comes down to how you use the vehicle: for personal use, business, or a mix of both. Let's dive into these uses and see where the tax breaks might come in.
Car Use for Business Purposes
Carpets, software, office supplies - business owners know they can deduct the cost of these items from their taxes. But what about that company car? According to the IRS, you can indeed claim a share of your car expenses, provided they were incurred while using the vehicle for business.
Here's where it gets interesting. You have two methods to claim these expenses: the standard mileage rate or actual expenses (like gas, maintenance, and insurance). Let's explore:
Standard Mileage Rate
The standard mileage rate is a set amount the IRS allows you to deduct per business mile driven. For 2021, it's 56 cents per mile. If you choose this method, simply keep a log of your business miles and multiply that number by the rate at the end of the year.
Just remember, once you choose the standard mileage rate, you cannot switch to actual expenses for that particular vehicle in any future year.
Actual Expenses
If you choose the actual expense method, you can deduct a percentage of your car's operating costs equal to the percentage of miles driven for business. Say you drive 10,000 miles in a year, with 6,000 of those miles for business. You'd multiply your total car expenses by 0.6.
Here, multiple categories of expenses apply. These include gas, oil, repairs, tires, maintenance, insurance, depreciation, lease payments, and for-hire vehicle expenses.
Business Use of a Personal Vehicle
Not everyone has a car exclusively for business use. Many working folks use their personal vehicles for both business and personal purposes. Enter: the IRS's 100-mile-a-day commuting rule.
That rule states you cannot deduct your vehicle's expenses if your only use of it is to travel between your home and workplace (your principal place of business). So, you can't claim taxes on your car if it's used solely (or more than 50% of the time) for commuting to your regular office or workplace.
Employer-Provided Vehicle
If you use an employer-provided vehicle, expenses can be deducted as business expenses on your tax return. This is typically the case for salespeople who are required to travel quite a bit for work. However, note that starting from 2018, miscellaneous itemized deductions - including unreimbursed employee business expenses - are no longer deductible on your tax return.
Employer-provided vehicles are still deductible, but it's important to check with your tax professional and keep thorough records of business mileage.
One More Time: No Taxes on Personal Use
Lastly, remember that your personal use of a car is not tax-deductible. Neither is commuting to work in a vehicle you own. However, if you have a home office and use your car to travel to different business locations, meet clients, or conduct other business-related driving, those miles can be claimed.
Deducting car-related expenses requires meticulous record-keeping. The IRS recommends keeping a mileage log or using a contemporaneous Bess method to track your business miles. Finally, always seek advice from your tax professional, as tax laws are subject to frequent changes.
Once you've driven through the complexities and figured out if you can claim taxes on your car, you're on your way to potentially slashing your tax bill. Safe driving, and happy filing!