The rules for vehicle deduction are probably misunderstood more than most, so I thought I’d explain a couple of things.
Should I Own My Car Or Should My Company?
President Bush the second leveled the playing field on this one. There is no benefit whatsoever on who owns a passenger vehicle. If your company owns a car and you drive it for personal purposes, you cannot deduct those miles just because the title is in the name of your company.
The opposite is also true. If you own a car personally and drive it for business purposes, you may certainly deduct those mileage costs no matter whose name is on the title.
The question of who should own your car normally comes down to cost. If it costs more for your company to own it because the financing is more expensive, then title it in your name. If the opposite is true, then…
Being able to deduct a car usually comes down to a question of deductible mileage.
What is the mileage rate for 2021?
Its 56 cents this year down from 57.5 last year. If gas prices continue to skyrocket, this will probably change in the middle of the year.
Does it matter if I lease or purchase my vehicle?
In most instances, no, but that depends on the type of lease. Under income tax law, leasing a vehicle is just another way of financing a purchase if it is a dollar buyout lease.
What happens if my company leases a car for me?
It isn’t automatically fully deductible. If you drive the car for personal reasons, then those miles should be added to your W-2 as earnings with the appropriate payroll and income taxes being levied.
Can I “Rapid Depreciate” a vehicle?
Yes, but now we get into the rules of Section 179 Depreciation. Normally, this would be for delivery vehicles, trucks, and vans over 6,000 lbs that never leave the place of business. Since they never leave the company and are assets of the business, the service will allow a rapid depreciation deduction.
Let me leave you with this.
The subject of deductible mileage can be a difficult one, so let’s set up a scenario.
You own a business that’s operated out of the third bedroom of your home. You live in Evanston and have a client in downtown Chicago that needs to be serviced. You drive from your home to your client making no stops, and do the return trip in the same manner.
Is that mileage deductible?
I’ll give you a hint. Don’t look for logic here because the answer is no. You might argue that this is a regular client who paid you by the hour to come to their facility and do whatever you did. You were even paid for the time it took to drive to and from your home office, but the answer is still no.
Because no one gets a deduction on any US Income Tax Return for driving to and from work. Since this is your first and last stop of the day, it isn’t deductible.
You might argue that since your business is housed inside your domicile, how else could you go to service your client. This is a reasonable argument, but the answer is still no.
What’s the solution?
If you had stopped at the local convenience store for a coffee, drove to your appointment and stopped back at the store on the ride back for a pack of gum, then the trips to and from the store would be considered the first and last stops of the day.
In other words, under tax law those trips would be considered going to and from work and aren’t deductible.At that point, your mileage from the store to your client and the return trip to the store would be.
I realize that it isn’t logical, but welcome to my world. I hope this clears up some of your questions.
We’re all going to get through this. Let’s get through it together.
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