Many business owners are stumped by the question of how and when to deduct vehicle use from their yearly income, and we know this because it’s one of the questions we hear most. The answer can be quite convoluted and vague when trying to research a solution from the IRS website and forums. The truth is that the rules set in place about automobiles are less than perfect, which is why we have broken down the rules into different procedures to help simplify the matter.
The first one is the most common way to determine how or when you should define your vehicle use as a claim for deduction or as exclusion from your income. Similar to an expense account, the accountable plan requires you to keep track of incurring costs and to obtain reimbursement when using your own vehicle for work purposes. As much as many of us want it to be, commuting to work does not meet the requirements needed to qualify as a tax deduction. Instead, expenditures such as parking fees, tolls, maintenance, repairs, fuel, car washes, registration and mileage can meet the criteria needed to file a claim. Just be sure to submit these expenses to your employer for confirmation or, if you are an entrepreneur, be sure to view your employees’ expenses for complete verification.
The second method pertains to employers providing a company-owned vehicle to their employees. In this scenario, it is up to the employee to manage and divide their driving time between business and personal use. Time spent on business matters should not be considered as income, but all personal time must be claimed as non-cash income.
For those who do not fall into either one of these categories, it may be better for you to claim the “unreimbursed expense” on your tax return. This situation is best used when you are required to use your vehicle for work, but your employer does not have an accountable plan, nor do they reimburse you for any expenses. For example, an outside salesperson that lives in their vehicle and drives from client to client all day long.
Unfortunately, complications can sometimes arise when trying to follow any of these procedures. In reality, the average taxpayer finds it difficult to find the line that divides each expenditure into business or personal categories. Not to mention that certain scenarios, such as having more than one job site or two totally different jobs, can cause a lot of confusion when trying to file taxes.
The most important thing to remember is to keep detailed records of all expenditures. Why? Because, at the end of the day, the use of a vehicle for your business is a legitimate deductible expense and should be claimed as such. At Simons Accountancy, we don’t want you to miss out on any deductions on your tax return!
Are you worried about your tax return? Are you sure you’ve missed something important? Bring it in to Simons Accountancy Corporation. We will make sure your return is complete and sent in on time.
Call now for an appointment—there’s still time! (714) 637-4552