If you run a small business and you use a vehicle to keep it running, you could have the chance to deduct the expenses of running that vehicle on your next tax bill.
There are two mechanisms in common usage for deducting expenses. These are actual car expenses and the standard mileage rate. The IRS stipulates you can take one or the other.
In 2020, the standard mileage rates per mile are:
- 57.5 cents for business.
- 17 cents for moving and medical purposes.
- 14 cents for charitable work.
So, what if you want to calculate your deduction via actual vehicle expenses instead? These are the things you need to know.
First, if you’ve owned the vehicle for one year you must use the standard mileage rate for the first year the vehicle is used.
If renting a car, they need to use the same standard mileage rate for the entire rental period.
Once you’ve decided how you want to deduct vehicle expenses, you can’t change your decision until the following tax year. If you qualify for both options, calculate the deduction using both methods to determine the right option for you.
In the event that you do claim for actual vehicle expenses, you’ll be able to deduct things like repairs, gas, licenses, oil, toll payments, insurance costs, and even depreciation.
You should use online tax filing software to find out more about actual expenses and the way they’re calculated.