Car tax write-offs may be tricky for small businesses because the qualifications are a little shady. The key to filing your tax form correctly is to determine the amount of time used for business and to calculate and document properly. Below are the deductions available, as well as the proper calculations and documentation that needs to take place.
Guidelines for Deductions
The aspect that gets tricky when it comes to deducting cars for small businesses is reporting the actual usage. Many use their cars for business, but may for personal use as well. To determine how much you can deduct, it is important to decide how much time the car is actually used for business. You can deduct all expenses if 100% of the time the car is used for business. If not however, the percentage of time that is may only be deducted. There are 2 different methods of deducting expenses below.
Actual Expense Method
The actual expense method involves a lot of meticulous documentation and record keeping. The benefit though, is that you can get a much higher deduction. To follow this method, it is important to keep track of and detail every single expense. Some of the deductions include but are not limited to: gas, maintenance and repairs, taxes, lease payments, loan interest, insurance, oil, registration, washes, tolls, parking and depreciation expenses. In order to make these deductions though, you will need to log your mileage exactly as well as provide receipts and paperwork to back up everything that you claim. To make this easier on you, keep a binder or envelope inside of the car so you can easily write down or file things. Once you have added up all expenses, you can take the percentage of time used for business and deduct on your taxes.
Standard Mileage Deduction
The standard mileage deduction is much easier to keep track of, but you will not receive as high of a deduction. For 2010, you can deduct $0.50 per mile driven during business use. Basically, you will need to keep track of just the miles that you drive and then multiply by $0.50. Remember when calculating though that you can only include the miles driven for business and you must leave out personal use.
Determining Best Method
The better method for you will depend on a few things. First, if you cannot manage to log with detail it may be better to stick to the standard method. If you can however keep a detailed record, you will most likely get a higher deduction, but you will need the documentation to back it up. The best way to decide is to do a trial period. Record for both methods for 30 to 60 days and decide which gives you the higher deduction as well as whether you can stick to record keeping. One thing to note is that once you pick a method, you will need to stick to it