Thursday, November 26, 2020

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Accounting

How do vehicle deductions work?

5/1/2019

Businesses can deduct either mileage or actual costs of the vehicle. The 2019 federal mileage rate is 28 cents per mile. Actual costs include but are not limited to depreciation (purchase price of the vehicle), lease payments or loan interest, gas, repairs, car licenses, oil changes, tires and insurance. The sum of the actual costs is then multiplied by the business use percentage (e.g. 90 percent used for business purposes). Tolls and parking are deductible regardless of whether mileage or actual costs are being deducted. Once a business deducts actual costs on a vehicle, they are not allowed to switch back to deducting mileage for the life of that vehicle. Deducting mileage or actual costs is a vehicle by vehicle decision that is usually determined by which method generates the biggest tax deduction for the business. Businesses with five or more vehicles must use actual costs.

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