Everyone wants to save money, especially when it comes to their vehicles. But after you've found the cheapest gas, calculated the best routes to and from work, and made use of all those little tips and tricks to save on your day-to-day car costs, is there anything else you can do? Yes--you may actually be able to deduct some of your automobile expenses on your taxes. This can help lower the amount you have to pay or even help you get a tax return. This isn't an option for everyone, though.
People who own their own business will most likely get more benefit from it, although people who regularly drive a company vehicle or need to use their vehicle for business travel can also made these deductions. However, it's important that you know the rules and regulations for deducting vehicle expenses before tax time.
Why before? Because otherwise, you may not have all the receipts or other information you need when you sit down to do your taxes (or give them to your CPA). You need to have a detailed record of all your business driving expenses. This includes the date, the mileage, and the reason for the trip. You'll also need to save receipts from gas stations and from maintenance and repairs, especially if the vehicle is only used for business. This can be a pain, especially if you aren't organized or don't know that you need to record this information. That's why it’s important you set up a system that works for you. You might want to enter all the relevant information in an electronic spreadsheet and collect all receipts in a file folder. You might also want to make copies of all the receipts so you have duplicates. Keeping a record book in your car so you can write down the mileage right away is another great idea. There's an easier method, and that is to use the Standard Mileage Rate, or SMR, that the IRS sets each year. The SMR takes into account the price of gas, average cost of repairs and maintenance, and other costs associated with a vehicle. It may not accurately reflect what you spent to maintain your car that year, but it can help make it easier than keeping all of those receipts and carefully recording all of the information needed to file an individualized claim. If you don't use your vehicle exclusively for business purposes, you'll have to figure out exactly what percentage is personal use and deduct that amount. This is yet another thing you'll have to keep track of. If you use your vehicle for business use half the time, you'll only be able to claim half of the expenses. When preparing your taxes, you can use either the SMR option or calculate your individualized claim. Sometimes, the IRS sets the SMR fairly high, but other times, it may be worth calculating both to see which gives you the best deduction. If you have any questions about deducting automobile expenses, a local CPA will be able to help you figure out what is and isn't eligible.