Romney - Writing Off Vehicles as Tax Deductions
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You've heard it a hundred times: That shiny new car your buddy just bought? It doesn't really cost him anything. He writes off the car as a tax deduction.
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Your first thought is usually, "That can't be right." Your second thought is, ' I got to figure out how to enjoy that loophole. "
But what does the law say? And what are the rules for writing off vehicles? It turns out that you can write off the cost of buying and using a car if you're self employed and use your vehicle in your business. Specifically, you can probably deduct the business portion of your vehicle expenses on your business tax return.
But this deduction is trickier than most people realize. Here's the first big thing that goofs many people up. You need substantiation to prove your business use.Ideally, in fact, the Internal Revenue Service wants you to keep a log of your business miles, your commuting miles, and your personal miles.
With this information, you can then either deduct an amount equal to the business miles times a standard per-mile rate of roughly $ 35 or $. 40 at mile (depending on the year) ... or you can deduct the percentage of your vehicle expenses equal to the percentage that your business miles represent.
Note that only your business miles-and not your commuting miles or personal miles are deductible.
For example, if your business use equals 5.000 miles, personal use equals 3000, and commuting equals 2000 miles, your total miles for the year equal 10.000. Business miles as a percentage of total miles equal 50% because 5.000 divided by 10.000equals 5 or 50%..
In this example, you could therefore deduct 50% of your fuel, 50% of your insurance, 50% of your maintenance and repairs, 50% of the car loan interest, 50% of the depreciation, and so on, as a business deduction. This means you can't ever deduct all the costs of owning and running vehicle-only the business use of a vehicle.
If you don't have exact records about your business use, you can sometimes use good sampling. For example, if you keep a good appointment calendar of your business activities, one popular tax reference suggests that you can look at the total business, personal and commuting miles driven during one week each month. Then, you can average this data to get good weekly estimates of your business, personal and commuting miles. Finally, you canmultiple these weekly estimates by 52 (the number of weeks in a year) to get reasonable estimates of your business, personal and commuting miles.
But before you go out and buy a new luxury car, you need to know there's another complication. Congress limits in most cases the amount of depreciation or lease rental that you can include in your vehicle expense calculations. The rules are a bit tricky, but essentially, for purposes of vehicle depreciation and lease payments, you only get to look at the first ,000 (roughly) of vehicle cost. In other words, if you buy a $ 60,000 vehicle and your friend buys a $ 15,000 vehicle, you may both have the same business depreciation expense-even though your vehicle costs four times what your friend's does.
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