It’s tax time, and that means it is also time to understand and add up all of your deductions. Maximizing your company vehicle write-off is so important, and it is in your best interest to understand why. There are quite a few rules and regulations of course, but some are better known than others. Keep the following issues in mind when you are considering the tax deductions for your company vehicle:
Usage: This might sound a bit obvious, but a lot of people run into problems with this one. If you own a vehicle that is actually being used, you may claim it. Some people attempt to claim a deduction for a company vehicle that is presently not being used. If it is just sitting? Sorry. You can’t claim it.
Size matters: Bigger seems to be better here. For example, if your vehicle weighs over 6,000 lbs. (and not more than 14,000 lbs.), you can take a higher deduction because of depreciation. This applies to the biggies: 4 x 4s, larger passenger vans, delivery trucks, and larger SUVs.
If you are contemplating buying a new vehicle in the next year, be sure to look into these deductions before purchasing. Deductions vary from $11,160 (smaller SUVs) to $25,000 (larger SUVs and cargo or passenger vans) for first-year deductions on new vehicles.
50/50: Is your vehicle used for business more than 50% of the time? That’s a good thing. Deductions vary based on the percentage of professional vehicle use. Some people have one vehicle for business and another for personal use. If you are in this category, it might be better to just have one car. If you drive the one vehicle for business more than 50% of the time the car is used, the deductions for that one car will be in your favor. As always, track your usage and document it well so that you can take advantage of this deduction.
Standard Mileage Rate: If you choose to apply the standard set by the IRS, you may claim 55.5 cents for every mile driven for business purposes. Or, you can use the Actual Expense Method, which entitles you to more deductions for wear and tear, gas, new tires, tire rotation, car washes, oil changes, and other general maintenance. Of course, there is a bit more homework and recordkeeping involved in the latter choice, but the deductions are higher.
Tolls and parking fees are deductions that qualify for both the Standard Mileage Rate and the Actual Expense Method. A lot of people make the mistake of not including these two additional expenses if they opt for the 55 cents per mile deduction choice; don’t jump into that pool. Get every deduction that you can. To take advantage of either of these deductions, you must own or lease the car.
Electric Vehicles: These deductions are changing pretty rapidly to keep up with the newer and more efficient cars. You may be entitled to a whopping $7,500 tax credit if you’re driving one of these new hybrids or electric vehicles. Do some extra homework on this one, as this deduction is dependent upon the amount of battery used to fuel the vehicle. (Check into IRS Code 30D for more details about this particular deduction.) These write-offs vary for vehicles purchased before 2009 or after 2010, so check that deduction carefully.
Luxury Vehicles: There was a big hullaballoo in Congress a few years ago. Think Hummers. A lot of people were up in arms about how tax laws seemed to be supporting and subsidizing the massive vehicles. Assuming 100% business use for a vehicle, this year’s maximum first-year depreciation for luxury vehicles that cost over $15,300 is $11,160 for a new car. ($15,300 is considered a “new luxury car”? Is Congress a bit out of touch here?)
However, as noted above in the “size matters” section, if the car is on the bigger and heavier side, the deductions can be, well, bigger and heavier. Get this: You could file for a $40,000 first-year depreciation tax deduction if you purchase a heavy and new SUV in 2012 and if it’s used 100% for business.
Car Insurance: It is so important to have great insurance coverage, but if you are driving a lot for business, the chances of a fender-bender – or worse – go up. You will want to be sure to have full liability, damages, and other losses covered in your plan. Be sure to get excellent coverage, and then file it as a full tax deduction. As always, the amount of business travel versus personal-use travel is a consideration when figuring out exactly how much of a deduction this is.
This is a great start for you to understand your write-offs as they pertain to your company vehicle. For a more detailed analysis of understanding any and all information about your business write-off, take a look at the IRS website, and look for Section 179. You may need a long yoga session after reading all of the data, but every write-off equals more of your hard-earned dollars staying in your bank account – and that’s exactly where the money should be, right?
April 15th is just around the corner, so start excavating for all of the receipts and data, and make the most of each and every single tax deduction that you can.
Valerie Wilson is a freelance writer and enjoys researching and writing about business topics for websites such as Reputation.com.