Are you asking yourself, “Can I deduct the purchase of a vehicle for my business?” There are a couple of places where you can deduct your business’s automotive expenses and several ways of going about it. Deducting vehicle expenses come down to reporting your actual expenses, your mileage, and the standard mileage rate.
Learn more about deducting your business’s automotive expenses and reporting actual expenses. Find out how to deduct the purchase of a vehicle for your business. And, discover little-known ways of reducing your tax liability on automotive expenditures in the first year of purchase.
Can I Deduct the Purchase of a Vehicle for My Business and How?
The answer, to “Can I deduct the purchase of a vehicle for my business?” is, yes. You can deduct the purchase price of a vehicle that is for your business. And, you can deduct the expenses that go along with using your business vehicle, as well.
You report most of these expenses on your Schedule C/C-EZ, Schedule E, or Schedule F. All of your actual business vehicle expenses go on IRS form 4562. Then, you report the total of your vehicle expenses on your Schedule E form, where it says “Auto Expense.”
The purchase price of the vehicle, however, does not qualify as an automotive expense. If you buy a new or pre-own vehicle for your business, you can take a special 179 deduction, which is better than a normal business deduction.
Claim a 179 Deduction for New Business Vehicle Purchases
Normally, you deduct business equipment, like vehicles, as an expense over the asset’s useful life. Section 179 deductions allow you to expense a large part of the entire purchase price in the first taxable year, taking more of your deduction right away. Thereby, reducing the losses on your earnings report in the same year you make the purchase.
How to Report Automotive Expenses on Schedule E
For reporting your auto expenses on Form 4562, first, separate your business auto expenditures, into actual expenses, and other expenses. Actual expenses include physical depreciation, tires, vehicle repairs, lease payments, fuel, licensing fees, and other practical costs of operating the vehicle. You deduct other expenses separately, like tickets, tolls, taxes, and interest on vehicle loan payments.
Keep Complete Records of All Automotive Expenses for Business
Every time you expend money concerning your business vehicle, keep a record. Receipts can be a real pain in the neck to keep around until tax time. An easy way to itemize the physical receipts from auto expenses is to keep digital documentation.
There are many simple PDF applications on the market that make documenting expenditures much less arduous. All you have to do is snap a photo of your receipt using the app, and it automatically converts into a PDF file. Some free PDF applications even automatically crop and color-correct the image to make it easy to read.
This do-it-yourself method might work for a limited operation, but your business will quickly outgrow this type of record-keeping. The best option is to enlist a dedicated professional to document, organize, and report your business expenses. A tax advisor can help you set up a system for keeping track of all your business’s automotive expenses and making sure that you receive the maximum deduction possible from your Schedule E.
Auto Purchases and Expenses: Reporting Actual Expenses on Tax Form 1040
If your business is a sole proprietorship, you can, either, report your auto expenses using the standard mileage method or the actual auto expenses. You report actual expenses on IRS Schedule E as repairs, licenses, or depreciation.
S-corporations and business partnerships cannot use the standard mileage method in determining deductible auto expenses. They can, however, use the standard mileage method in reimbursing employees for their usage of a business vehicle. The only other instance in which a partner can use the standard mileage method is in reimbursing another of the business partners for using a personal vehicle for business purposes.
In such a case, the reimbursement amount becomes an actual expense on your IRS Schedule K-1 tax form. This type of mileage reimbursement is an expense from nonpassive activities on your Schedule E.
Reporting Your Total Schedule E Expenses
At this point, you have made it to the end of your Schedule E. You have a better idea of how to go about determining your rental real estate cost basis and depreciation and report your auto expenses. And, you know how to take a special 179 deduction for the purchase of your business vehicle.
Are you still wondering “can I deduct the purchase of a vehicle for my business?” Talk to a certified business tax advisor to get the most from your business auto expense deductions.