How to Write Off Your Car or Truck for Business
If you use your personal vehicle for business purposes, it’s important to understand what you need to do in order to write off your car or truck for business expenses. There are specific regulations under the IRS code, and unless you abide by this code your vehicle expenses will not be allowable. You don’t want to overlook things that are deductible, but you also don’t want to face penalties for failing to abide by the IRS code.
Following IRS Code
The IRS code that allows an individual to legally take a vehicle write off for business can be rather complicated, but it doesn’t have to be. According to a spokesperson from Rutgers University, the problem lies in the fact the rules are in a mess.
Under IRS code, entrepreneurs who wish to write off a car or truck for business expenses may qualify to claim deductions or reduce their income by the value of the vehicle they use for business. However, there is a specific process involved, and they must comply with IRS regulations in order to receive all the tax deductions to which they are entitled.
The Process of Claiming Business Vehicle Expenses
There are two ways an individual can write off car or truck for business expenses which include:
* Those who own the vehicle they write off for business is commonly referred to as an accountable plan. What this means is the individual drives the vehicle as necessary for work purposes and keeps track of all associated costs such as tolls, parking, mileage, maintenance and repairs, gas and car washes. Unfortunately, the code does not allow a person to write off the costs of going back and forth to work; this is viewed by the IRS as personal use.
If there is an employer involved, the individual submits the expenses for reimbursement of all work-related expenses including vehicle write offs for business. A business owner may also be responsible for verifying the expenses employees claim in order to assess the validity of those expenses. This method works in the same manner as a checks and balance system.
* Another scenario for taking a write off on a car or truck for business expenses involves the entrepreneur providing an employee with a vehicle the company owns or leases. The employee maintains a log of the time s/he drives the car for both business and personal use. The employer should not count the time an employee spends using a vehicle for business use, but any personal use of the car must be recorded as income and be calculated based upon the annual fair-market value of a lease.
Understanding these two commonly accepted methods used to write off your car or truck for business is the easy part. In reality vehicle tax write offs can get quite complicated such as in cases where the business owner drives to multiple job sites or jobs. The process is far from being black and white; in fact, there are many gray areas that are open to interpretation. This makes it difficult for the average taxpayer to understand how and when to write off a vehicle for business.
Compliance with IRS rules on the legality of a vehicle write off for business is far from being perfect. Unfortunately, when the risk of audit is less than one percent, many taxpayers have no problem trying to bend the rules. The problem is those who get caught will face stiff penalties. An experienced tax advisor is the best source of up to date and accurate information regarding the tax laws on vehicle write-offs.
If you’d like to know more about how we can help you get the BIGGEST Refund and pay the LEAST amount in taxes, call us for a FREE Tax Preparation Consultation at (855)829-8477.