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Write off a vehicle for business in 2023
Write off a vehicle for business in 2023
If you’re a W-2 employee who drives a fancy car to your job and are looking to use that mileage as a tax deduction, I’m afraid there's some bad news. But if you're self-employed, you get to come out on top in this situation.
After the Tax Cuts and Jobs Act, W-2 employees can no longer claim tax deductions on their vehicle usage. But the IRS allows self-employed individuals to write off the business portion of your car expenses when you file your Form 1040.
The vehicle tax write-off comes in many forms. You can deduct your mileage and certain vehicle-related expenses and even depreciate your vehicle over time. A car and mileage tax calculator is the best way to find these deductions.
Key takeaways:
- Self-employed individuals can write off the business use of their vehicle
- Vehicle mileage, vehicle maintenance expenses and the vehicle depreciation deduction can also be claimed by 1099 employees when filing taxes
Table of contents
How to write off a car as a business expense?
The main thing to remember when writing off vehicle expenses is to keep good records. The IRS needs a detailed log of all your expenses if you are trying to write off a vehicle. This is especially important if you’re calculating the business use percentage of your vehicle as you need to clearly show exactly how many hours you used the vehicle for work.
The business use percentage is generally calculated when you use your vehicle for both personal and work reasons. If you’re a Lyft driver only working weekdays, your business use percentage will be based on the 5 days you work for Lyft. The rest of the time you use your car will be considered personal usage.
You can use either the standard or actual mileage method to claim your vehicle mileage tax deduction. The standard method allows you to write off the business mileage of your vehicle based on the IRS set rate. For 2022, it was 58.5 cents per mile from January to June, and 62.5 cents per mile from July to December. For 2023, the rate was increased to 65.5 cents per mile to account for inflation and the cost of living crisis.
This method is great for self-employed individuals who mostly drive for work like rideshare drivers. This is also a good option for electric car owners, as they do not incur any gas expenses. And you can still deduct parking, tolls and any fees you pay at the DMV if you claim this deduction.
To make things easier, you can use a quarterly tax calculator to calculate whether you owe the IRS over $1,000 and need to pay estimated quarterly taxes. If a tax deadline has passed, use a tax penalty calculator to total your penalties.
You can opt for the actual expenses mileage method if you incur a lot of vehicle repair or maintenance costs. For this method, you’ll have to track your mileage very closely and keep all your vehicle-related expenses in order because you can claim those as a deduction, too.
If you just link your expenses to FlyFin, A.I. can take care of all of that for you by scanning your transactions to find all the vehicle-related tax deductions you can claim year round. If you want help preparing and filing your returns, the CPAs who are experts in 1099 taxes can do it for you. They are also available 24/7 on the app to answer any questions.
With the actual expenses method, you can deduct license and registration fees, gas, insurance fees, and maintenance and repair costs. However, you’ll need to calculate your business use percentage for this method, which can be quite time-consuming. After finding your business mileage, you’ll need to convert it into a percentage and multiply that by the total of your vehicle expenses.
You can write off the business portion of your vehicle even if you’re not a rideshare driver. Any client meeting, errands, or photoshoots you use for a car can be written off. This applies even if you work from home. Just remember that the first and last trips of the day to and from your home can’t be claimed, as they are “commuting miles”.
I lease my vehicle, can I still write it off?
You absolutely can! If you lease your vehicle and still use it for work, you can write off the mileage and other expenses depending on the deduction method you choose. You can even write off your lease payments from your self-employment taxes if you choose to go with the actual mileage method.
Can every type of business write off a vehicle?
If you're operating as a sole proprietor, you can choose either the standard mileage or actual expenses method to claim the business use of your vehicle, regardless of whether you own or lease the vehicle. But if you choose the actual expenses method in the first year of using your leased vehicle for business, you can’t switch to the standard method in the next year.
If you’re part of an S corporation or a C corporation, the deduction will depend on who owns the vehicle in question. If it is owned by the corporation, the business use portion can be deducted as part of operating expenses.
This rule is only applicable if the personal use of the vehicle is borne by the employee, like in the instance of getting a company car as a benefit. If the vehicle is owned by the employee, they can submit a request for reimbursement of their travel expenses.
If you’re part of an LLC, you can write your entire car’s cost as a business expense using Section 179. The IRS lets businesses claim a 100% deduction if they use their vehicle solely for business purposes. You can use an LLC tax calculator to help you with this.
If you’re self-employed, there are certain benefits to using your vehicle for your business. Just make sure that you track all your expenses and mileage throughout the year so that you have all the information you need when you sit down to file your returns.
What’s FlyFin?
FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors. It offers a host of cutting-edge tax tools that help you quickly find deductions. You can also use tools like a home office deduction calculator.
FlyFin uses an A.I. to track all your business expenses automatically and find every possible tax deduction.
Once you have all your possible deductions in one place, our CPA team files a guaranteed 100% accurate tax return for you. It saves you a couple of thousand dollars and a ton of time on your taxes.
Download the app and have your taxes filed in minutes, saving time and more money on your taxes than last year, guaranteed.
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