When you are self-employed, not only do you have to be business-savvy for the business itself, you also need to be in the know about taxes and what sort of deductions you may qualify for.
Dealing with your automobile expenses when you’re self-employed can be a bit challenging, but knowing the important tax-related guidelines can turn out to be a big benefit.
Deduct the Mileage You Use for Business
You probably do a good bit of driving for your business if you are self-employed, whether it is to deliver your product, visit customers and clients, or trek back and forth to the nearest copy center. If you are using your car for business purposes, you can deduct the cost of mileage. Remember, personal use does not count, so be sure to keep a close count if you are mixing your work with your family errands (stopping by the grocery store shouldn’t go on your mileage log!). You can buy devices to install into your car to help you keep track of the business miles, too.
Each year, there is a standard mileage rate, and you multiply your mileage by this for the total deduction. Make sure you use the current year’s rate!
Deduct the Expenses and Depreciation
Instead of deducting mileage, you can figure out your actual auto expenses and the depreciation of your vehicle and use a formula that multiplies it by the percentage of use for business. Some examples of expenses are things like parking fees, tolls, registration fees, maintenance, gas, tags, and interest on car loans. Remember, you have to figure the percentage of the business use for these. You can also deduct a percentage of your auto insurance if you are self-employed; it’s still a good idea to find the best insurance by getting a wide variety of auto insurance quotes.
Some people prefer this to the mileage reimbursement, some people prefer mileage – you just can’t do both.
Keep Careful Records and File Correctly
Some experts say that filing auto deductibles on your taxes can alert the auditors. That’s fine if you’re doing it correctly; no worries!
Keep careful records whichever way you choose to file, whether it’s by mileage or expenses – that means file your receipts and keep a good record of everything car-related. Don’t try to sneak all sorts of other routine errands and costs, like driving your kid to swim practice or a family vacation. However, don’t be too conservative if you do combine a lot of the driving.
Before filing, it’s a good idea to familiarize yourself with the pertinent tax documents for auto deductibles, along with detailed guidelines. Usually it is a Schedule C tax form for the self-employed.
Nothing seems easy when it comes to taxes, but once you get this all figured out and decide which way to approach it, you may be surprised with all the benefits you can get from deducting your car expenses when you are self-employed.
Heather Legg is a blogger who writes on healthy family lifestyles, small businesses, and money-saving tips.