Drive a Better Bargain: Get Bigger Deductions on Business Vehicles

Automobiles are typically the most expensive property you own. Your home carries a higher price tag, but it also tends to appreciate. This almost never happens with vehicles. Therefore, it is critically important to make use of whatever opportunities the tax code allows for you to recover the costs of vehicle ownership. This is generally easier for the self-employed, but there are also provisions that will help employees who use their vehicles for work.

Your first goal should be to maximize your business miles because they are deductible, unlike commuting miles. This doesn’t mean driving a lot more. Slightly altering your habits may produce big tax benefits and make you a more effective professionally, as well.

Say you work in a downtown office 20 miles from your suburban home. What would happen if you drew up a list of your company’s top clients and made a point of stopping at one of their offices on the way to work and another one on the way home every day, delivering materials for your salespeople? Would your company be more likely to prosper? Would your status among the sales staff improve? Would you convert thousands of useless commuting miles into deductible business miles? The answer to all three questions is, “Yes.”

Another way of minimizing commuting miles is to make your home office your primary place of business. One of my clients worked for a firm whose office was close to 50 miles from his home. He went to the office a couple of days per week, but did much of his work at home or at client sites around the country. I provided a letter for his supervisor to sign that incorporated specific language required by the IRS, so that the employee’s long drives downtown became deductible business miles. This generated additional deductions of about $4,000 per year for my client.

Getting all the business vehicle deductions you should takes good record keeping. Many taxpayers are discouraged by the prospect of having to maintain elaborate records all year. In fact, keeping audit-proof records can be far less burdensome than most people think. A representative 90-day sample of mileage logs can suffice. Or you might record your miles one week per month. Expenses below a certain dollar amount do not need to be supported with receipts, so long as they are recorded in a timely manner in your diary or account book.

These are just two of many strategies I use to help my clients do a better job of tax planning. If you have questions about this topic or simply want to be sure you aren’t paying too much income tax yourself, feel free to call or write me at your convenience.