Understanding Business Use of a Vehicle: What you need to know

PDF: Business Use of a Vehicle Guide

Purchasing a vehicle for your business use can be an exciting step. It's important to keep in mind the tax implications, what qualifies as business use and which records to keep.

The first year you place a vehicle into service for business use, you must choose between the Standard Mileage Rate or the Actual Expense Method. This election is important because you can't switch methods in later years. If business use is less than 50%, we generally recommend using the Standard Mileage Rate.

Calculating the Standard Mileage Rate for Business Use of a Vehicle

 This is the simplest of the 2 methods:

• Multiply your total business miles driven by the IRS mileage rate for that year.

• Also note, interest expenses are allowed.

Calculating the Actual Expense Method for Business Use of a Vehicle

• With this method, you must track all vehicle-related expenses, including:

  • Fuel

  • Maintenance and Repairs

  • Insurance

  • Registration

  • Taxes

  • Interest Expense

• Track the total miles driven and business miles driven for the year.

• Total expenses are then prorated based on the percentage of business use.

What is Considered Business Use?

Business use of a vehicle includes:

• Travel to meet clients or customers.

• Travel between two business locations.

• Travel for business purposes such as:

  • Education/ Training

  • The bank

  • Your attorney

  • Your CPA

  • Picking up office supplies, etc.

What is Not Considered Business Use?

You cannot claim:

• Travel between home and work, regardless of whether work is performed during the trip.

• Making business telephone calls while commuting does not convert the trip to business use.

• Holding a business meeting in the car while commuting does not change it to business use.

• Advertising on your vehicle- Displaying material that advertises the owner's or user's trade or business on an otherwise personal trip does not convert it to business use.

There are differing guidelines and conditions for deductions based on the type of vehicle you purchased for your business use.

Standard Vehicle (Under 6,000 lbs)

• Accelerated depreciation is allowed if business use exceeds 50%. For example, if you paid $30,000 for the vehicle, you could possibly write off $30,000 in the current year.

• If the vehicle is classified as a luxury automobile, depreciation is limited to a maximum of $61,200.

SUV (Over 6,000 lbs)

• Luxury automobile limits do not apply.

• This qualifies for accelerated depreciation, provided business use exceeds 50%.

Leased Vehicles

• If you lease a vehicle and elect to use the Actual Expense Method, lease payments may be deducted as an annual business expense.

• If the vehicle's value exceeds $61,000, the deductible lease expense may be reduced due to luxury automobile limitations.

Whether you choose to use the Standard Mileage Rate or the Actual Expense Method, there are travel records you will need to keep! Keep a notebook and pen in your car for easy access or have a lot you keep on your phone. Whichever way you choose to log your travel records, be consistent and actually record the information! This will make your life much easier at tax time!

Necessary Travel Records:

• Date

• Business Purpose

• Destination

• Odometer meter start and end

• Receipts (If using the Actual Expense Method)

PDF: Business Use of a Vehicle Guide

We know all of this can be confusing and stressful.

That’s why we’ve made it our mission to help you unravel it all.

From confusion to clarity, Accountabilities has you covered.