If you lease a vehicle and use it for a permissible purpose, you can deduct these expenses from your income. Claiming a deduction for operational costs associated with charitable, medical or business use is allowable. Whether the vehicle use is full- or part-time, the cost of its operation can be a tax write-off that reduces your taxable income.
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Personal or Business Use
Whether the leased vehicle is for personal or business use, a tax write-off is available. Just by simply keeping a written log, your daily activities could lead to a tax deduction.
The expense of using your vehicle for any business purpose is tax-deductible. This is not limited to just the owner of the business. Employees that use their personal vehicle for business also can take this deduction.
If you drive your car for a medical reason or for charity, these types of personal uses are deductible, too. Driving to the store to pick up supplies for your church or a trip to the doctor's office for medical care can result in a tax write-off. Keep track of these personal use miles separately.
Costs that are Deductible
Any costs associated with the operation of the leased vehicle is a deductible expense for a business. These can include gas, oil, tires, repairs, maintenance, insurance and the lease payment. The costs are limited to the percentage of business use you are claiming. No depreciation expense is deductible on a leased vehicle.
Vehicle costs associated with medical or charitable use are limited to the actual costs, such as gas and oil, that you can allocate to the activity. These deductible expenses do not include any repairs, maintenance, insurance or lease payments.
You can choose between taking the standard deduction or actual cost. The Internal Revenue Service determines the standard rate each year, and it is subject to change.
To find your standard rate deduction for business or personal use, simply multiply the activities miles by the standard rate. The rate is different for medical and charity than for business use, and it is generally lower. The IRS posts the new rates on its website each year.
When using the actual cost method, medical and charity expenses are limited to the actual cost associated with the activity. You will need to keep records of your miles used for the activity and allocate the costs of fuel and oil to those miles. For instance, if you drive 100 miles for charity and your vehicle gets 20 miles per gallon, you will use five gallons of gas. Multiply the five gallons by the current fuel-per-gallon cost to arrive at your deduction for charity.
Actual costs for business are limited to those associated with actual business use. To allocate these costs for business, you will need total miles driven for the year and business miles driven. Take the business miles for the vehicle, and divide by the total miles driven for the year. This will give you a percentage of business use. Multiply this per cent by the total cost to determine your total business costs for the year.
The IRS requires that taxpayers keep records that are adequate to provide substantiation for the tax write-offs they claim. Furthermore, these records must be in writing to be adequate. To meet this condition, the taxpayer should keep a written log of miles driven indicating the vehicle use and expenses paid. Attach to your log, an envelope holding all receipts associated with this vehicle for the year.
Taking the Deduction
Personal mileage deductions are reportable on IRS Form 1040 Schedule A as an itemised deduction. Business taxpayers report their deductions on a tax return pertinent to their businesses. For the sole proprietor, this return is the 1040 Schedule C, and for the S-Corp, it is Form 1120S. A partnership will file a Form 1065 tax return to claim its automotive expenses.
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