It is possible for you to get tax deductions for costs associated with the operation of cars, trucks or other vehicles however, these deductions need to meet certain conditions first. It is an area where many of us make some automobile deductions mistakes.
Before we talk about those common mistakes, we need to understand some of the basics about automobile tax deductions.
Conditions for Claiming Mileage Deductions
Here are the different areas for which you can claim automobile deductions:
- Business purposes
- Medical purposes
- Charitable work
- If you are a member of the military on active duty relocating on new orders, then you can claim mileage deductions.
The amount deducted will be based on the total number of miles spent while driving for these purposes.
4 Common Mistakes in Automobile Deductions
Here are the 4 common mistakes that most of us make when submitting automobile deductions:
Not Being Aware of Mileage Deduction Rules
The biggest mistake that people make when doing automobile tax deductions is not being completely aware of the rules. Here are the basics:
- You can opt to use the standard mileage rate offered by the IRS or actual expenses. Now, if you have used the standard mileage deduction in the first year, you are allowed to change it to actual expenses as a one-time exercise, but must continue with actual expenses going forward. If you have chosen to show actual expenses from the beginning, you are not allowed to change the deductions to standard.
- Vehicles that have been leased or are being used as the primary asset for the business (cabs, trucks, and etc.) can only deduct actual expenses.
- The more expensive the vehicle, the higher the deductions you are allowed. However, the IRS has put in limits on car depreciation and leases, therefore you need to keep in mind automobile depreciation deductions too.
- Parking is fully deductible, but only if it is not for your permanent place of business. This means that if you have parked at your office, you will not be granted deduction. However, if you have parked at your client’s office for a meeting, then the expense will be deductible.
These are just the basics. There are, of course, more in-depth rules for how to deduct car and truck expenses on your taxes, so it would be a good idea to talk to your accountant to understand them all.
Not Maintaining, or Maintaining Poor Mileage Logs
Mileage logs are key to ensuring that your deductions come through. There are many ways in which we make mistakes with regard to logging miles:
- Only tracking the longer drives. We forget to log drives related to getting gas, or going for a client dinner, driving to buy office supplies, and so.
- Not Keeping a Contemporaneous Log. Ideally, you should keep a log of every single mile you have driven for business. However, this is not the most practical way to keep your logs. So, the IRS allows you to keep a weekly log of your drives. The best thing to do would be to download a mileage tracking app that would keep track of your miles for you.
- Keeping Untidy Logs. You need to ensure that your mileage logs are neat and clearly documented. Hand-written or messy logs will be denied almost immediately.
- Keeping Inaccurate Logs. Even if you have beautifully maintained logs, if the data in them shows inaccuracies or wrong information, then your deductions will be denied.
- Not Having a Home Office
One of the many rules state that you cannot have an automobile tax deduction for commutes from your home to your work. However, if you have a home office that qualifies as your main place of business, then these deductions would be allowed.
Claiming 100% Business Usage
This is by far the most common mistake that people make. If you do not have your mileage logs in order and you still claim that all your commuting is expressly for business purposes. This is an instant red flag for the IRS and could even lead to an audit.
We’ve got tax professionals to help you out- Contact us today.