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Don’t Lose Track of a Penny or a Mile: Maximizing Vehicle Expenses for Tax Time

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Let’s face it. None of us really want to give more money to Uncle Sam than necessary. Fortunately, there are a number of ways to take deductions that help minimize the amount of income you have to report, including various vehicle-related deductions.

It is important to have these ready and think ahead about how you can maximize your expenses within the taxable year so you can record more on your return for that year. While it may mean a mad rush at the end of the tax year in terms of maintenance and other deductions, it will be well worth it when you start calculating the savings as the April deadline looms.

IRS-Approved Business Vehicle Deductions

There is an extensive laundry list of deductions that the IRS allows you to take in relation to any vehicles that are driven for business or charity reasons:

  • Gas
  • Repairs and oil changes
  • Tires
  • Lease payments and fees
  • Insurance and depreciation
  • Licenses, tolls, and parking fees
  • Registration fees
  • Garage rent
  • Vehicle washes and detail work
  • Mileage from one workplace to another in terms of business meetings and office locations as well as visits to customers.

You can select to take the deduction on the current standard mileage rate or compute it as a total actual expense, but you cannot claim both ways as a deduction. The 2008 standard mileage rate is now $0.50 per mile. If you opt for the mileage deduction, you have to forego claiming expenses, such as lease payments, depreciation, gasoline, repairs, maintenance, registration fees, and other expenses previously listed.

If the business vehicle is also used for certain trips that are personal in nature, then the expense deductions must be allocated in a way that gives a percentage of time for business and for personal use. Only the business percentage would be calculated towards the deductible expense totals.

The Devil is in the Details

Keeping careful records of what you have spent on your vehicle or the ways in which you have used for a business can make it easy to record all the facts and figures when it comes time to fill out your tax return. In fact, the IRS stresses the need for keeping adequate records in order to justify the aforementioned deductions. They recommend a written travel log with accurate mileage records.

After all, as Mike Grobman, an Atlanta CPA stated, “Unclaimed or under-claimed deductions represent a real net loss for businesses or individuals.” This makes it difficult for a financial advisor or yourself to calculate the best way to maximize available deductions.

The records you need to keep depend on which method – standard mileage rate or actual expense – you want to use to maximize your tax deductions. Here is what you need for each type of method:

Standard Mileage Rate Information Actual Expense Information
  • Documentation identifying each vehicle.
  • Proof of ownership or lease contract.
  • Daily log with miles traveled, the destination, and business purpose for that trip.
  • Documentation identifying each vehicle.
  • Proof of ownership or lease contract.
  • A mileage log is still useful because it helps account for how many miles are for business and for personal use.
  • Receipts, invoices, and other documentation on every expense incurred on each vehicle.
  • Proof of ownership or lease contract.
  • Documentation showing original cost of vehicle and any improvements/enhancements (aftermarket parts) for calculating depreciation costs.

You cannot use the standard mileage rate if you own or lease two or more vehicles that are both used for business. This is especially the case if you have a fleet of vehicles for your staff. This method cannot be used if an employer provides you with your vehicle because they are the one that would be able to deduct all the expenses.

Real-Time Paperless Assistance

While many just try to make up an estimate at the end of the year, others at least go as far as to keep a notebook with mileage numbers listed in some sort of organized fashion. You may not be the best advocate for saving trees because your receipts and scraps of paper are exploding from your desk and glove compartment, but there is help!

As an invaluable tool, the Internet is being used to cut paper consumption and offer a better way to not lose track of your vehicle expenses. Companies can help you by providing a way to generate various expense reports that provide excellent documentation for your vehicle tax deduction calculations. Each real-time online reporting capability allows for accurate record-keeping without getting lost under mounds of paper.

Technology enhancements to these vehicle service reporting companies also allow business owners and individuals to utilize an intuitive interface that helps log business trip information as well as maintenance, repair, and mileage records even while on the road. Vehicle owners can access a repository of information, such as insurance payments, warranties, and trip logs that all provide an essential source for tax deductible expenses.

Up Your Expenses Before the Calendar Changes

As the year comes to a close, this is a good time to start looking at what expenses you have accumulated as tax deductions on your vehicle by reviewing your easily accessible online records. This may be an excellent opportunity to record some additional expenses:

  • Get one more oil change or a long overdue tune-up.
  • Have the vehicle detailed inside and out with a fresh coat of wax or paint sealant.
  • Rotate and balance tires or take the plunge for a new set.
  • Make an extra lease payment.
  • Pre-pay an insurance bill or registration fees.

Your vehicle will thank you for the extra attention and you may have a smile on your face when you get the results of your tax return for the year.

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