Did you know that you can get a tax break if you are self-employed or drive for work? From depreciation to gas to repairs, you can deduct some, or all, of your vehicle expenses if you meet certain rules that the IRS has created.
Tax deductible car expenses are a great way to reduce your taxable income, but you need to make sure you are eligible for these deductions. Want to know more? Read on to learn about the different vehicle tax deductions available
Read on to learn more about the different vehicle tax deductions available for the 2021 tax year.
Tax Deductible Car Expenses
If you are looking to reduce your taxable income, vehicle tax deductions are one way to do it. There are two main ways to calculate these expenses: actual expenses and standard mileage rates.
If you own a business or are self-employed and use your vehicle for your business, you can deduct those vehicle expenses. However, if you use the care for personal use as well, you have to split the expenses. If the vehicle is used 60% of the time for business and 40% of the time for personal reasons, you will need to account for that.
Actual expenses that may be deducted include:
- Depreciation of the vehicle
- Gas and oil
- New tires
- Repairs and regular maintenance (tune-ups)
- Lease payments
- Registration fees
- Insurance premiums
If you are self-employed, there are further tax breaks if you purchase a new vehicle for your business. Under Section 179 of the tax code, you can get a large tax write-off if you buy a vehicle over 6,000 lbs. Check out the Section 179 deduction vehicle list for 2021 for examples of vehicles that meet these requirements.
There is also a first-year depreciation bonus that you can deduct after the first year you own your car. The amount changes each year, so if you buy a car this year, be sure to check on the deduction amount for next year’s taxes.
Standard Mileage Rates
The other option for deducting your vehicle expenses is to use the standard mileage rate. Itemizing your expenses will often give you a bigger deduction, but you must keep all of your receipts, document any money spent, keep lists of miles drive (for work and for personal use) and be able to back up all of your deductions. This takes significantly more work that simply using standard mileage rates, but it could be worth the extra time.
The standard mileage rates are as follows for 2022:
- Business driving: 58.5 cents per mile (this is a 2.5 cent increase from 2021 due to rising gas prices)
- Driving for medical care and moving purposes for active-duty military: 18 cents per mile
- Driving for charitable organizations: 14 cents per mile
Don’t Sleep on These Deductions
Tax deductible car expenses are one way to reduce your tax burden. Do your research or speak with your tax preparer to ensure that you are getting all of the deductions you are entitled to, especially if you are a business owner and are self-employed.
If you found this information useful, be sure to check out some of our other posts for more tax preparation and deduction tips.