Whether you're a business owner or freelancer, you surely use your car for some or the other business needs. Maintaining and driving a car has become more expensive now than ever. You can get a deduction on these expenses, provided that your vehicle usage is directly related to your business and you have the receipts to back up your claims. And yes, it's also possible to write off 100% of mileage under certain circumstances. Let's find out how.
Only self-employed individuals are eligible to claim business mileage deductions, as per the latest Tax Cuts and Jobs act.
There are two ways you can calculate mileage deduction:
A. Standard mileage
In this method, you can write off a fixed amount against every mile. This method includes all types of vehicle-related costs, so you cannot claim a deduction for gas, insurance, or other expenses separately.
Besides business purposes, you can also write off mileage if you used your vehicle for charitable services, moving places, or on medical grounds. The mileage rates mentioned above are applicable for the year 2022.
B. Actual expense method
In this method, you have to keep a tab of each and every expense you incur in regard to your vehicle, such as insurance, gas, maintenance, toll, parking cost, depreciation, and so on. However, driving between your home and workplace is not included here.
For more details, visit the IRS website.
When you’re following the actual expense method, it’s important to maintain a record of all relevant documentation. The IRS would need to see the documents to accept your claim, and having the records handy makes the tax filing process seamless. Not just the current year, you should preserve documentation for at least three years. Keep the originals as well as a copy of each document.
In most cases, people use a vehicle partially for business purposes and partially for personal use, so they can only get a partial deduction on mileage. For instance, if 40% of your vehicle expense is pertaining to your business, then you can write off only 40% of your total vehicle expenses. This calculation can be a bit tough to crack, so we would advise taking professional help.
If you have a vehicle dedicated to your business, one that you use only for business-related needs, you can write off 100% of mileage on it. But in all cases, supporting documentation is a must.
Vehicle expense is a large part of your firm’s total cost. As a self-employed taxpayer, you have to file the mileage correctly so you can maximize your tax deductions. Going with the standard deduction is an available option, but those with heavy usage would get more benefits from furnishing the actual mileage. And as we mentioned, when you have a car specifically for business use, you might even write off 100% mileage.
If you want to avoid complicated calculations, you can always let the experts take care of them. At Accountants Now, our tax experts can help you minimize your tax liability legally, file taxes, and save you from all the tax-related headaches. Contact us today and get a free quote.
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