Three Simple Steps to Take to Maximize Your Auto Expense Deduction

If you’re a small business owner or “1099 income” earner, you can save thousands in taxes you shouldn’t have to paying by simply taking these three steps to maximize your auto and truck deduction.

1. Be strategic about which auto, truck or SUV you purchase.

When it comes to IRS rules on autos and trucks, all vehicles are definitely not created equal! Some vehicles allow you a bigger tax write-off than others in the first year you purchase them. For example, certain new or used SUVs that have a gross vehicle weight (GVW) over 6,000 pounds, carry passengers and have a truck chassis, can give you a tax deduction over $25,000 in year one. That’s a tax savings of $5,000 if you’re in the 20% tax bracket.

2. Use the actual expense method, rather than the IRS standard mileage rate.

The IRS allows you to deduct 54 cents per business mile on your 2016 income tax return. Probably 90% of taxpayers and their CPAs use the mileage rate because it’s quick and easy to to calculate.

But the American Automobile Association (AAA) runs the numbers every year on the actual operating cost per mile for every type of vehicle, and the fact is that most vehicles on the road today cost more than 54 cents per mile to operate. Which means you’re likely losing money every time you put the key in the ignition if you’re claiming the standard mileage rate.

The better option may be to track your actual expenses, and then multiply the total dollar amount you actually spent by your “Business Use Percentage”. (ie., if you drive 10,000 miles, and 6,000 miles are for business use, then your Business Use Percentage is 60%).

3. Make a quality decision that you’re going to ‘up your game’ on record-keeping.

Most business owners hate the record-keeping and tax rules set by the IRS. But auto expense is the single most audited expense category on a small business tax return. Keeping a mileage log and solid record-keeping is not an option.

The real truth is, it’s not hard to do. (Really!)

Your smart phone already has the built-in technology to diligently track all your business and non-business trips.

  • It’s the smart-phone user (you!) who simply needs the daily diligence to classify each trip as either business (swipe right) or non-business (swipe left) before your head hits the pillow.
  • Take a receipt each time you put gas in the car, run it through the car wash, or visit the mechanic.
  • Then scan the receipts into your computer so the ink won’t fade before next April 15th.

For more information on steps you can take to maximize your vehicle deduction, contact a trusted tax professional, or contact me if you don’t have one. I’m here to help.

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