Badass minivan! –said no one EVER!
I have one and let me tell you - I do not feel anything close to a bad-ass when driving it! Ok, keeping with the year end crunch, let’s talk about a automobile deduction opportunities for us business owners, shall we?
The big question:
"Can I write off my badass minivan as a business expense?"
Quick answer, yes, if you have a business and you use that badass minivan for business purposes, you have a business expense.
But you cannot deduct your entire badass minivan. Sorry, not gonna happen, because that sweet ride is being used for personal purposes too.
To be clear, this is what the IRS says about it,”If you use your car in your job or business and you use it only for that purpose, you may deduct its entire cost of operation (subject to limits discussed later). However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use.”
Quick side note: The IRS’s Website has a Tax Topics section that contains super helpful information. I acknowledge it's not super exciting for non-accountants, but nevertheless, there is great information to check out for all your burning tax questions.
But I digress...
So ok, how much can you deduct?
It varies. And guess what, there are 2 options for how you can deduct.
Option 1: Kitchen Sink Option (aka Actual Expense Option)
The kitchen sink option is where you track ALL your car expenses, like the following:
- Oil changes and repairs
- Registration Fees
- Vehicle Depreciation OR Lease payments (I didn’t say loan payments! You cannot deduct your auto loan payments and that includes any down payment!)
ADD those expenses up THEN multiply by the vehicle’s percentage used for business. Remember 100% is not an option - we call that lying - as your vehicle is used for personal as well.
*Parking Fee and Toll expenses associated with business purposes, are legit fully deductible. Place those expenses aside and add them in after the total is calculated.
So how does one figure out the percentage of business use? Hold tight there my friend, I will explain in a moment.
Option 2: Standard Mileage Option
The Standard mileage deduction is where you simply calculate your total mileage driven for business purposes and multiply that by 53.5 cents (the 2017 Standard Mileage rate for 2017) and voila! With the Standard Mileage option you can also add your Parking Fees and Tolls. So if you take the NYS Thruway to drive to a client meeting, make sure you capture your EZ Pass toll for that trip because it is 100% deductible! To reiterate, Parking Fees and Tolls are available expenses to deduct regardless of which method you choose.
Before I go any further, I need to point out one important thing about the Standard Mileage option. IF you want to use standard mileage, “you MUST choose to use it in the first year the car is available for use in your business…” This is a direct quote from the IRS. But note, after the first year, you can absolutely use the Actual Expense option OR the Standard Deduction option, but its first year is a Standard Mileage otherwise you are using Actual Expense for the lifecycle of the vehicle for business deduction purposes.
So, now that you have both options presented, you need to know how to calculate the % for the Actual Option OR the mileage total for the Standard Option?
This is where recordkeeping is imperative. I know, you are rolling your eyes, you have decided to just say ‘whatever’ and not bother.
I implore you not to do that because auto expenses are great for your business tax filing.
How do I record my mileage?
Its simple, you use a Mileage Log. And you have 3 options:
- Pencil/Paper Method
Then head home and begin reviewing your calendar and record the date, destination, purpose and mileage to AND from the location.
If this pencil to paper method sounds mind numbingly boring - (I totally agree!) here’s another two options.
- Create an Excel/Google Sheet
Create column headers for the following: Date, Destination, Business Purpose, Mileage to Location, Mileage From Location
Similar to the Pencil/Paper Method, review your calendar, add your appointments then once completed create a formula based on the Actual Expense OR Standard Expense Option.
If this seems too complicated to create on your own but you want to use a spreadsheet, you can download my Mileage Tracker spreadsheet and enter your mileage for 2017.
But if you desire something that removes the majority of the manual process, let me present a free download of a spreadsheet you can use to track your miles!
nd here's your third option–
- An App that will make Mileage Tracking so freakin easy…
MileIQ is an amazing app that will make this mileage tracking exercise easy peasy.
MileIQ runs on your phone (iOS and Android options available). Like most people, their phones are on them at all times, so when you are driving around MileIQ does the work of your Mileage Log and is able to track all your travel - no matter what. At the end of the day, when you are watching the latest episode of The Crown/Stranger Things/Jane the Virgin (would recommend them all), simply open MileIQ on your phone and review the trips for the day. If the trip was for Personal use, swipe left, if was for Business, swipe right. You can even indicate the purpose of the trip (i.e. Client meeting, Dr. appt., Volunteering (BTW, mileage for Dr. appts and Volunteering are deductible, check with your accountant to learn more!). Once you have swiped all your trips you are done. This will literally take you less than 3 minutes to do every night!
Then monthly, quarterly, annual basis, simple run your MileIQ reports and you have the information so you can calculate your mileage for the year. It’s really that easy.
Here’s one more thing - if you want 20% off your MileIQ subscription you can use this link https://www.mileiq.com/invite/RWJSP OR use PromoCode: ALAL645A at checkout.
Are you sweating tax season? I offer comprehensive tax prep services that will get you ready to rock and roll come tax time! Schedule your free consultation today!
I hope this helps alleviate some year end tax stress. Be sure to subscribe to the newsletter below to get advice on how to make your business bookkeeping easier and get a bonus download, "Five Money Managing Apps to Transform your Business"!
Thanks for reading. Please keep in mind that The Wellness Bookkeeper, LLC and the information contained herein is not intended to be a source of advice with respect to the material presented, and the information and/or documents contained in this website do not constitute legal advice and is not be held liable.