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Tax Tip: Using Your Car for Business?

Taxpayers who have deducted the business use of their car on past tax returns should review whether or not they can still claim this deduction. Some taxpayers can. Some cannot.

Here’s a breakdown of which taxpayers can claim this deduction when they file their tax returns.

Business owners and self-employed individuals

Individuals who own a business or are self-employed and use their vehicle for business may deduct car expenses on their tax return. If a taxpayer uses the car for both business and personal purposes, the expenses must be split. The deduction is based on the portion of mileage used for business. Note: Driving to your office is a personal expense and not a business deduction.

There are two methods for figuring car expenses (1) Actual or (2) Standard Mileage:

Method 1. Using actual expenses such as Depreciation, Lease payments, Gas and oil, Repairs and Insurance

Method 2. Using the standard mileage rate. The standard mileage rate for 2019, it‘s 58 cents per mile.

Taxpayers who want to use the standard mileage rate for a car they own must choose to use this method in the first year the car is available for use in their business.

Taxpayers who want to use the standard mileage rate for a car they lease must use it for the entire lease period.

Employees

Employees who use their car for work can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions. Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car. This is a Federal law adopted as part of Tax Reform. You may still deduct this for California purposes.

To schedule a consultation on your business deductions contact me today.

Richard Pon CPA, CFP