You know that tracking your business vehicle expenses is important. But you have questions. Can I use my personal vehicle for business? What types of vehicle expenses should I track? Should I track mileage or actual expenses? We hear these types of questions often. In this article, we provide some answers and discuss some tips to improve the tracking of your vehicle expenses for business.
Can I use my personal vehicle for business?
Yes, you can use a personal vehicle to perform business-related tasks. For instance, if you own a construction company and own a personal truck, it’s understandable that you would use it in your work. However, when using personal vehicles, there are some guidelines to keep in mind.
First, if the title of the vehicle is in your personal name and is financed, it is best practice not to pay vehicle loan payments through the business. Especially for corporations and partnerships, any vehicles purchased for business use should be owned by the company and not by an individual.
The good news is that other vehicle expenses such as fuel, repairs, or parking fees can be paid by the business when the vehicle is in business use (more about this later).
Second, the IRS has guidelines for business deductions involving vehicles. If you use a vehicle for both business and personal purposes, you may deduct only the cost of its business use.
Should I track mileage or actual expenses?
When it comes to business vehicle deductions, the IRS offers two methods to choose from:
- Standard Mileage Method – You can take the total business mileage and multiply it by the current standard mileage rate provided by the IRS for the current year.
- Actual Expense Method – You can deduct the actual costs to operate the vehicle for the portion of the overall use of the car that is business use.
Depending on your tax situation, your CPA or tax professional may recommend one of these methods over the other. We recommend meeting with your tax professional to discuss which method is right for you.
If you are using the Standard Mileage method, you absolutely need to track mileage. To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses.
Be sure and document the beginning and ending odometer miles too, as the odometer miles at the beginning and end of the year may need to be included on your tax return.
A basic way to track mileage is by keeping a logbook in your vehicle. A good logbook should track the following information:
- The odometer miles at the beginning and end of the current year
- The starting and ending odometer miles per trip
- Notation indicating the nature of each trip (personal/business/charitable)
You can total up the mileage by use at the end of the year to calculate the portion for business use.
An easier way to calculate mileage is to use an app. One helpful app is MileIQ. MileIQ tracks your driving miles automatically. It compiles a record of your travel and gives you the ability to assign miles as personal or business with a quick swipe on a mobile device. Particularly if you track mileage for multiple vehicles, using an app can help you track and report mileage efficiently.
What if you use the Actual expense method? Do you still need to track mileage? Yes. While you may record actual expenses on your tax return for this deduction, capturing total mileage is still needed. Why? By capturing which portion of your mileage was for business use, your tax professional can determine how much of your total vehicle costs can be deducted for tax purposes.
What types of actual vehicle expenses should I track?
Regardless of whether you use a personal or company vehicle, you should track vehicle expenses when using a vehicle for a business purpose.
Here is a list of common vehicle expenses you should consider tracking:
- Gas & Oil
- Registration fees
- Depreciation/lease payments (if the vehicle is owned by the business)
Here again is where an app can prove useful. One such app for capturing and digitizing receipts is Dext. By snapping photos of your vehicle receipts using your mobile device, you can record and save clean copies of your vehicle expenses should you be called upon to present them.
Your receipts will be the evidence supporting these expenses. So you will want to keep good records by saving your receipts.
Tracking business vehicle expenses can seem overwhelming, but it doesn’t have to be. Knowing the basic guidelines for calculating business use and keeping good receipt and mileage records will prevent much anxiety and frustration at year-end. Looking for some additional tips to prepare for year-end? Visit our Year-End resources page for additional articles that can help!