Writing off car payments for business can be a good idea until the expenses become too high. It gets to a point when you need to deduct some of the costs a car incurs from the business.
Writing off these expenses might include reducing fuel costs or lowering maintenance costs. There are easy ways to deduct car repayments.
If you can donate to charity, deduct auto lease payments, or convert into an electric car, all the better. Since it’s not possible to avoid personal use in the business car even for the most committed business person, some tips will help you deduct some of the personal cost.
Is it Possible to Write Off Car Payments Fully?
No, it’s not possible to completely write off your car payments as a business expense. A car needs fueling and maintenance, for example, so this rule cannot apply.
The only instance where this applies is with a sole proprietorship—when the business owns the car, and it is only used for business purposes. Then it’s possible to use a car for business activities.
Can you Write Off Lease Payments on Taxes?
Yes, you can deduct lease payments on taxes. In this case, you can only deduct upfront lease payments over its entire life.
For instance, a lease of $500 whereby you only make use of 50% of the lease, you can deduct ($250 x 12).
Ways to Write Off Car Payments As a Business Expense
1. Cut Down on Fuel by Converting to an Electric Car
Converting to an electric car is the best decision you’ll ever make when it comes to cutting on car expenses. The first step to doing this is involving a mechanic to test the life of the car.
For a newer car that has more life to it, fitting an electric kit is crucial. On the contrary, it’s not advisable to fix an electric kit on an older car. Doing so will be incurring unnecessary costs for the business.
Though it’s costly, installing an electric conversion kit is a power fuel saver on its own. Since fuel costs can prove to be a pain in the business, cutting down on the fuel is a relief.
2. Take Advantage of Tax Reduction on Hybrid Cars
It’s always good to reduce interest on a car loan. Deducting on interests and taxes levied on the car works magic when writing off car expenses.
Sometimes there are offers all over on tax reduction for hybrid cars. For instance, if you bought a car before January 2011, you could enjoy this benefit.
A tax reduction will cut down on car expenses, so your business doesn’t incur a lot of costs.
3. Separate Business Use from Personal Use
In a sole proprietorship, always separate the car’s business use from personal use. If you use the business car for personal activities, keep records of the same.
Additionally, account for all the business expenses of the car. As a result, it’s even easier to track where you can cut down on costs. It’s advisable to never use a personal car for business activities.
Since that will bring confusion on the expenses, always separate the car’s personal and business use.
4. Account for All the Unpaid Business Expenses
Another way of canceling car repayment as a business expense is accounting for all the unpaid expenses. You need to sort out the unreimbursed expenses to make things easier.
For instance, key in all those fuel and maintenance costs you incurred but were never paid.
In a way, this relates to separating business expenses from personal expense but it’s also very different. If you are self-employed, factor in all these expenses to make sure these costs are catered for.
When you get total expenses on the car, it’s simple to know where you can cut down. For instance, you can do away with town trolls and parking fees if need be.
5. Track the Total Business Mileage
To reduce car expenses on the business, you must note down the total distance the car covers. Having some knowledge of the business mileage helps you cut down on unnecessary distances.
Doing so means devising the best methods you can apply to your business. Some of the methods to apply are cutting down driving tolls and unnecessary parking fees.
6. Donate to Charity
If your car is completely used up and fixing it could be a nightmare, why not donate it? Giving a car as a contribution to charity is the best idea ever.
Giving out to charity reduces costs on repairs, maintenance and parking. Therefore, consider donating the car if it’s too costly to maintain in the business
Doing so means not incurring extra costs in repairs and not having the hassle to put up an ad for its sale. Even if you have to, sites like Carbrain.com offer a platform where less-than-perfect cars get visibility for drivers with a tight budget.
7. Count All the Annual Auto Lease Expenses
Getting the total lease expenses for the car is important for canceling car repayments in the business. For a new car, multiply the number of months leased with the total monthly expenditures.
On the other hand, for a new car, it’s different. Always multiply the total monthly expenditures by twelve to find the annual auto lease expenses. After doing the math, you can work on deducting the unnecessary expenses. For instance, deduct on leases for those you don’t use fully.
The Bottom Line
There’s nothing more fulfilling than writing off car payments as a business expense. Interestingly enough, deducting car expenses on your business is never dependent on the type of car.
Instead, it relies on the type of business (whether self-employed or legally employed).
For a self-employed person, buying a car to use exclusively for business expenses is critical. Though it’s hard to completely deduct car expenses, doing so in a sole proprietorship setting is possible.
Writing off car expenses comes in many forms. Some of them are charitable contributions, converting to an electric car, and deducting auto lease payments.
It is, therefore, possible to write off car payments as a business expense. Not all of these techniques may apply to you. Be sure to check with your accountant for specific details and methods that relate to laws in your area.