Vehicle Expenses


Most business owners can expect to have vehicle expenses. Businesses that require a lot of driving may have a lot, others such as a retailer or restaurant, not so much.


The IRS allows two different methods of figuring expenses. You must choose one, you cannot do both. The obvious one is actual costs. If you buy a truck to use in your plumbing business, you can deduct the cost of the truck over time, so much a year. This is called depreciation and is roughly comparable to the loss of value as the vehicle ages. You can also deduct direct expenses such as gas, oil, insurance, tires, and other maintenance. If it is also your personal vehicle or it is available for other uses such as pulling your boat to the lake, all of the cost must be pro-rated. In other words, what percent is business and what is personal? Driving to work from home is considered commuting and is therefore personal not business.


The second method used to figure vehicle expense is the standard mileage method. The rate varies from year to year, but is generally around fifty cents a mile. For this method, careful driving records must be kept. You will need to know business miles, commuter miles, and personal miles. A notebook in the vehicle, a computer program or something similar to track miles is a good idea.


For most people, the standard mileage rate is the best. It is easiest to track, and usually results in a bigger deduction. Some people are not allowed to use the standard mileage rate. Taxi companies and anyone with more than five business vehicles must use the actual costs, for example.