Maximizing business auto tax deduction

How a business calculates car expenses depends on whether the business owns the car or if it's a personal car being used for work.

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Who Owns the Car?

For a car to count as a "business auto tax deduction" the business must be listed as the owner on the car’s title. If it’s not, then it's considered a personal car.

Personally Owned Cars

If you own the auto personally and not through the business:

• The cost of the car and any loans should not be listed in the business records.

• The business should not pay for any auto-related expenses. If it does, it’s treated as money owed to the business or a payout to the car owner.

• The car owner can ask for reimbursement by submitting an expense report.

• Reimbursement is based on how many miles were driven for business, multiplied by the IRS-approved rate.

• The business must pay back the car owner by check.

• Business miles start from the main office. If you work from home, your business miles start there. If you work from a company office, your business miles start at that office.

Business-Owned Cars

If the auto is owned by the business:

• The cost of the car will show up as an asset on the business's financial records, along with any loans for the car.

• The business can claim tax deductions for the car’s depreciation (the loss of value over time).

• The business should cover all costs for the car, like gas, repairs, and insurance.

• Drivers of business cars must keep a mileage log.

• If the car is used for personal reasons (like commuting to work), the company must count that use as part of the employee’s taxable income.

Keeping a Mileage Log

A mileage log needs to include:

• Date of the trip

• Number of miles driven

• Where you went

• Who you met with and how they're related to the business

• The purpose of the trip

Deductible Auto Expenses

If you use the actual expense method, here’s what you can deduct:

• Gas and oil

• Repairs, maintenance, and tires

• Insurance and licenses

• Depreciation

• Interest on a car loan

• Lease payments for the car

• Parking fees and tolls

Conclusion

There are many rules and exceptions about car deductions, so it’s best to talk to an expert to make sure you’re doing it right.