How a business calculates car expenses depends on whether the business owns the car or if it's a personal car being used for work.
Who Owns the Car?
For a car to count as a "business auto tax deduction" the business must be listed as the owner on the car’s title. If it’s not, then it's considered a personal car.
Personally Owned Cars
If you own the auto personally and not through the business:
The cost of the car and any loans should not be listed in the business records.
The business should not pay for any auto-related expenses. If it does, it’s treated as money owed to the business or a payout to the car owner.
The car owner can ask for reimbursement by submitting an expense report.
Reimbursement is based on how many miles were driven for business, multiplied by the IRS-approved rate.
The business must pay back the car owner by check.
Business miles start from the main office. If you work from home, your business miles start there. If you work from a company office, your business miles start at that office.
Business-Owned Cars
If the auto is owned by the business:
The cost of the car will show up as an asset on the business's financial records, along with any loans for the car.
The business can claim tax deductions for the car’s depreciation (the loss of value over time).
The business should cover all costs for the car, like gas, repairs, and insurance.
Drivers of business cars must keep a mileage log.
If the car is used for personal reasons (like commuting to work), the company must count that use as part of the employee’s taxable income.
Keeping a Mileage Log
A mileage log needs to include:
Date of the trip
Number of miles driven
Where you went
Who you met with and how they're related to the business
The purpose of the trip
Deductible Auto Expenses
If you use the actual expense method, here’s what you can deduct:
Gas and oil
Repairs, maintenance, and tires
Insurance and licenses
Depreciation
Interest on a car loan
Lease payments for the car
Parking fees and tolls
Conclusion
There are many rules and exceptions about car deductions, so it’s best to talk to an expert to make sure you’re doing it right.
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