What Vehicle Expenses Can You Claim as an IRS Tax Deduction?
From RVs to sedans to smart cars, drivers behind the wheels of all kinds of vehicles are required to handle the costs of driving them and the ongoing maintenance of these vehicles. As you probably know, these expenses often add up very quickly and can become a regular expense in your monthly budget. There is some good news, however. If you use your vehicle for business reasons, you may be eligible to claim vehicle expenses when filing your taxes with Uncle Sam.
While the vehicle deduction is extremely beneficial from a financial standpoint, it’s important to understand that it is restricted to only certain drivers and specific car-related costs they incur. The basic IRS rule is that you must use your vehicle for business-related trips. Let’s say you drive your personal vehicle from a workplace to an outside location where you meet face-to-face with a client or engage in a specific business activity. Such a trip would qualify for the deduction. Another example is if you own a small business and maintain a home office where you do some work out of your residence. If you use your personal car for transportation to other places for business purposes, you can write off the expenses related to these types of road trips as well.
In order to claim vehicle expenses on your income tax return when filing with the IRS, there are two basic approaches you can take. One option is to deduct a certain amount of your mileage. If you go this route, the standard mileage rate for tax year 2014 is 56 cents per mile, meaning you can write off this amount based on how many miles you drive for business reasons. The other option involves calculating the actual vehicle expenses you incur. Costs you may include in this calculation are fuel, oil changes, vehicle repairs or maintenance, tolls, and insurance. Be sure to weigh each option to find out how you’ll benefit most in terms of tax savings. Keep in mind you can only choose one option – not both.
There are many professions out there that require a lot of time to be spent on the road. Truckers, bus drivers, cab drivers, and limo drivers are only a few of those that involve significant time behind the wheel. To qualify for the vehicle deduction, you should be a self-employed professional. This could mean working as a 1099 independent contractor or running a formal small business such as an LLC or corporation. Individual taxpayers who work for an employer and earn W-2 income while using their personal vehicles for work trips are normally ineligible to claim the vehicle deduction on their returns. But, if an employer does not reimburse an employee for such costs, the employee may be able to deduct them as unreimbursed employee expenses.
Just like when claiming other beneficial tax deductions, it’s critical to maintain proper receipts and other documentation that indicate how your vehicle was used for business purposes. Plus, be sure you are eligible for claiming this deduction to avoid raising any red flags when your tax return is processed by the IRS.