How to deduct car expenses for business? The cost of operating a vehicle for your business is a business expense, there, it’s deductible. The Internal Revenue Service allows the car expenses to be deducted in two ways. A taxpayer can either claim the standard mileage deduction or deduct the actual expenses.
Both of these deductions should be calculated properly so that the one that will reduce taxable income the most can be figured out.
The deduction for business vehicle expenses can be claimed using Schedule C—Profit or Loss From Business. By using this tax form, you can claim your car expenses and any other business expense if you’re operating as a sole proprietor.
Given most businesses operate a vehicle for business operations, this deduction is claimed by more than 9 out of 10 businesses. If you ever find it hard figuring out which deduction to claim, compare the standard mileage deduction and the actual expenses deduction. By comparing these two deductions, you will know which one will reduce taxable income the most and ultimately allow you to pay less tax.
While you will need third-party confirmation to claim the actual business vehicle expenses, you will multiply the number of miles driven for business with the standard mileage rate for business and take the deduction. That said, you will need to adequately prove the business portion of your expenses.