You can deduct the actual costs of using your personal vehicle for business use.
How the tax rules work
The IRS allows you to deduct the actual expenses of operating a vehicle, or take a standard mileage rate.
You can only use one method for a particular year. If you choose the standard mileage rate, you can’t deduct actual car expenses. Both methods require you to carefully track information, in order to take full advantage of the tax deduction.
Many self-employed people simply track mileage to deduct vehicle expenses.
Standard mileage rate
The internal revenue service business mileage rate for 2019 is 58 cents per mile for the use of a car. You can keep a log in your car to track miles by listing the date, miles driven and the purpose of your trip.
However, if you use a manual process to track of your mileage like many of us do, you may get busy and forget to record the data.
Fortunately, QuickBooks® has a GPS tracking feature that can sync with your mobile device and operates as a mileage calculator. You can review the mileage recorded in the app, and label miles as either business or personal. The business expenses can be uploaded to your QuickBooks accounting records.
Tracking miles is much easier when you use software.
If your driving fits into one of these categories, the mileage is deductible:
- If you work two jobs, mileage driven between the locations is deductible.
- Mileage from your main job location to clients (for meetings or customer deliveries) is deductible. Your main job location can be your home or an office. You can also deduct the mileage from a client back to your job location.
- Mileage costs from your home to an office, however, is not deductible.
Actual expenses are based on the percentage of time you use your personal vehicle for business purposes.
The easiest way to compute the percentage is to track mileage for the year, and divide the mileage between business and personal use. So, even if you choose the actual expense method, you can use the QuickBooks app as a mileage tracker.
For example, you estimate that 60% of your car’s use is for business. You add up your actual expenses and deduct 60% of the cost as your vehicle expenses for the year.
Your actual expenses include:
- Lease payments
- Loan interest on a vehicle loan
- Vehicle depreciation
- Repair and maintenance costs, including tires
- Insurance and vehicle registration fees
- State and local personal property taxes
- Tolls, parking fees and garage rent
Use QuickBooks Self-Employed to track these costs for your business.
Depreciation expense is posted as you use your car, and it declines in value. Ask an accountant to help you with the depreciation amount. The tax code has specific rules for posting depreciation.
Which is the best method for deducing your vehicle expenses?
The best way to choose a method is to track costs using both methods. At the end of the year, add up both expense totals and use the method that offers the higher tax deduction.
Here’s an example: Say you drive 6,000 miles for business during 2019. Your vehicle deduction—using the mileage method—is (6,000 miles X 58 cents per mile), or $3,480.
You also track your actual vehicle expenses, which total $5,000. Based on the mileage-tracking app, you estimate that 60% of your vehicle use was for business. The actual expense total is (60% X $5,000), or $3,000.
If that’s the case, use the $3,480 mileage method amount because it gives you a higher tax deduction.
How to report tax information
Most self-employed people are classified as sole proprietors for tax reasons. These workers report business income and expenses, such as mileage on Schedule C of Form 1040 (individual tax return).
Schedule C has a line for car and truck expenses.
The business profit on Schedule C is added to other sources of income on your personal tax return.
Grow your business
Once you understand the expense calculations, the process will get easier over time. Use technology to manage your business expenses, so you can spend more time growing your business.
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