When it comes to paying taxes, it’s perfectly natural — even wise — to look for every possible deduction. No one wants to pay more than they absolutely must.
But there’s one area that can be fraught with misconceptions for those writing off business-related expenses, and that’s vehicles used for business.
If a business buys and owns the vehicle, it is deductible. You’ll deduct initial costs and keep a depreciation schedule. You can write off gas, tolls, parking, registration, repairs and other related expenses. However, if you use the vehicle at all for personal purposes, you must be sure it’s minimal when compared with business use, keep good records and track personal mileage. (Keep in mind that traveling to and from work is not considered business use of a vehicle.) Costs related to personal use are not deductible.
Generally, the IRS considers traveling: (1) from one workplace to another, (2) to visit clients or customers, (3) to attend a meeting away from your regular workplace and (4) from home to a temporary workplace when you have one or more regular workplaces to be legitimate business uses.
Conversely, if you have a personal vehicle that you use for your business, keep records of its use for business. The IRS has a standard mileage rate deduction to cover expenses such as gas, maintenance, etc. Alternatively, you can deduct actual expenses, including depreciation, licenses, lease payments, registration fees, gas, insurance, repairs, oil, garage rent, tires, tolls and parking fees. Choose whichever method gives you the bigger deduction, but remember that in all cases, the IRS will want to see records if it audits.
Another common misconception involves using vehicles for advertising. Several small business owners believe that if the business’s logo is on the vehicle, that vehicle then is in constant business use as a sort of traveling billboard.
While that can be a smart marketing idea, especially for people in sales, trades and transportation, it will be a tough sell with the IRS. Here’s what the IRS says about vehicle signage: “Putting display material that advertises your business on your car does not change the use of your car from personal use to business use. If you use this car for commuting or other personal uses, you still cannot deduct your expenses for those uses.”
Whether talking business or personal tax returns, the more deductions you can legitimately take, the more money you’ll have for your wallet. To be sure you’re taking all the vehicle deductions you can — and doing so legally — see IRS Publication 463, a guide to travel, entertainment, gift, and car expenses.
For more information regarding tax deductions for your Wisconsin business, contact Brandon Prinsen at 608-784-5678.
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