December 16, 2017

Everyone loves paying less!

Everyone loves paying less! Taking deductions for expenses when completing your tax return gives anybody a good feeling. Since we all use a car to get from A to B, this post will give you a basic understanding of how you can profit from this provision in the US tax code as-well-as some practical tips that ensure you have adequate backup.

There are 3 fundamental decisions to make:

1. First question each entrepreneur, small business owner or network marketer should answer is if the vehicle is solely used for business. That means that you do not use the car to quickly run an errand or to drop your child off at a football practice. If the car is 100% used for business purpose all expenses are deductible. However, if you use the car for both personal and business activities you can only deduct the cost of business related trips.

2. Another choice to make is which calculation method to use. For most tax filers taking the easy route, and just using the standard mileage rate to calculate your deduction, is the best option. Just be sure to use the correct amount for the year, because there is a different rate for a car owned and a car leased. Yet, for many business owners who use their automobile exclusively for work, the use of actual cost is often more beneficial. This selection allows tax payers to include the following expenses: gas, oil changes, repairs, car washes, tires, car insurance, annual registration fees, license (renewal) fees, and depreciation if you own the car, or lease payments.

3. Persons that have more than one job then need to determine the principal place of work. Where is the location that you conduct most of your occupation? Factors to consider are time and activities performed, and how much you earn. This job will be considered your main or principal place.

 

Make sure you add this  to your expense log!

Make sure you add this to your expense log!

Do you have a job?

People that have a part time or full time job at an office, store, school, etc., and whose income is more than the revenue earned in the part time business, the commute from home to the office or other work location is not tax deductible. Only if the work site location is temporary, out of the metropolitan area, and does not last longer than a year, the drive to and from this place are tax deductible. Persons that have more than one job often don’t know that they can deduct the cost for going from the first job to the second job on the same day.

 

Are you self-employed?

When you work out of a home office you can deduct any trip you make that has a business purpose such as a client visit in his office, a sales meeting at a restaurant, or attending a workshop related to your work.  Just to be clear, your home is the place where you actually live.

The above tax rules are only applicable for people that own their car. When you lease your car, or when your employer provides a car the tax regulations get more complicated if it is used for both personal and business activities. I will not explain these specific rulings in this blog post because I only wanted to paint the big picture.

Take action!

To get you started collecting evidence for tax inquiries you need to record all trips you make. Either you spend a few dollars and buy an auto mileage log book at Office Depot, create your own Excel spreadsheet, or download an app such as MileIQ , Triplog and MileagePad. Many apps have a basic free version or free trial, and then charge a monthly fee – some as low as $1 a month. Maybe it is time to use modern technology and save some time and effort.

I hope the above information is useful to you. I’m planning more blog posts on tax deductions and maybe I do a few videos on this subject too in the next few months. Help me become better in serving your tax questions or business matters by commenting below. Feel free to send me a message if you have a question regarding transportation deductions. And if you prefer to use electronic documentation click here to download my mileage log.

 

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