Can Your Business Deduct Your Personal Car?

If you own a business and drive a car you personally own, you may find yourself asking the question: can you deduct the vehicle? This question can get a little complicated. Many business owners struggle to understand what is and is not allowed for deductions with personal assets. Below is a little information to help you understand your options.

Business Deductions

For the most part, business deductions come from determining how much of your revenue was profit. Many things can be deducted such as payroll, rent, interest and all manner of other business expenses. Typically, these are only costs that are incurred in the course of doing business. Therefore, you would not be able to deduct your mortgage payment on your home.

However, there are other deductions such as depreciation that aren’t exactly expenses but reflect a loss for your business, nonetheless. This can affect vehicles owned by the business. Understanding how this works can help illuminate how you can deduct your personal car.

Deducting Business-Owned Vehicles

If your business owns the vehicle, deducting vehicle-related expenses is fairly simple. The business pays for your gas, vehicle maintenance, insurance and other expenses. These all count as business expenses and reduce your profits accordingly.

Additionally, you can deduct the depreciation of the value of the vehicle. The amount the vehicle can depreciate for tax purposes depends on the vehicle. If it is under 6,000 pounds, there is a limit. If it is over that weight, the full value of the vehicle can be depreciated. This makes larger commercial vehicles such as vans and trucks a better investment in many cases.

When Your Personal Vehicle Counts as a Business Deduction

If you use your vehicle for business purposes, you can deduct the expenses for using it for that purpose. This is slightly more complicated than a business-owned vehicle because you need to keep track of when it is being used for business and personal reasons. Typically, your drive to and from work does not count but driving while working does count.

For pass-through businesses, you can claim the expenses against your tax filing. For other entities, it is often best to seek reimbursement from the company. The business can then deduct the reimbursement expenses.

You can track your actual expenses or use a standard mileage model. If you are using your actual expenses, the deduction or reimbursement is based on the real cost of operating the vehicle. This includes gas, oil changes, insurance and depreciation.

You will usually need to know your actual overall expenses and both your business and total mileage. Calculate the percentage of driving that was business-related then divide the expenses accordingly. For example, if half of your driving was business-related, you can deduct 50% of your expenses.

If you use standard mileage, you only need to keep track of your business driving mileage. There is a standard rate set by the IRS. For 2019, that was 58 cents per mile. You can just deduct the standard rate multiplied by the number of miles.

You may want to calculate both deductions. That way you can determine which is the most advantageous to you. For many smaller vehicles, the standard mileage method is better.

Consider Having a Business Vehicle

It may make sense to buy a vehicle for yourself through your business. If a high percentage of your travel is business, starting an S corp to own your vehicle could be for you. In this case, you may be able to more easily and more completely deduct the expenses and depreciation from your vehicle. If you use your vehicle for a lot of personal travel, this may not make sense.

Understanding the tax implications of every arrangement of vehicle use can help you save a lot of money. If you run a small business, you have a lot of flexibility. Doing everything you can to maximize your dedications could help you have more money in your pocket later on.