and operating a vehicle is expensive at the best of times. If you are a small
business owner looking to save some money, using your personal vehicle for
business purposes may be an instant cost saving.
IRS classifies 'business use of a car' as travel between two destinations, one
of which may include your regular place of business.
you are an independent contractor using your car to get to client meetings or
you use your vehicle for deliveries, you will need to understand the regulatory
ramifications (and benefits) of using your personal vehicle for business
is an overview of some of the key considerations that you will need to bear in
mind as you drive around doing business in your personal car, truck or van.
1. Auto Insurance -
Does your Policy Cover Professional Business Use?
as a small business owner, you use your vehicle for any purpose other than
driving to and from work or other personal use, you should check your existing
insurance policy documents to see if you need a commercial auto policy or
require your existing personal auto policy to be endorsed to cover your
specific business use. For example, if
you are involved in any kind of food delivery service, catering, landscaping
services, or operate a day-care or church van service, you are well advised to
do some simple research before you use your personal vehicle.
insurance agent if you are unclear and consult these small
business insurance resources from the government to
help you make informed decisions when buying vehicle and other small business
2. Understanding Tax
Deductions: Personal Vehicles Use vs.
Business Vehicle Use
There are basically two
fundamental tax breaks for business owners who use vehicles for business
purposes, but be sure you are aware of which one applies to using your personal
vehicle for business:
a) Actual Vehicle Expenses -
If a vehicle is used exclusively for business
purposes, you can typically deduct the full cost of operating the vehicle.
For more information on how you can claim the actual vehicle expenses
deduction, refer to this *Business
Use of Vehicles overview from Turbo Tax.
b) Standard Mileage Rate -
If you use a vehicle for business on a
part-time basis, i.e. your personal auto, then you must divide your
expenses (in the first year that you begin using it with your business) based
on actual mileage. The IRS 2009 optional standard
mileage rates is used to calculate the deductible costs
of operating an automobile for business or non-profit use and is currently set
at 55 cents per mile. Get more information from the IRS on mileage rate
addition to basic mileage, you can also deduct interest on an auto loan,
registration and property tax fees, and parking and tolls, as long as you can
prove that they are business expenses. As with all business tax preparation, be
sure to keep good records by keeping a detailed log of all your business miles,
receipts and other documents.
For more general
information about which business expenses qualify as tax deductions, refer to
which also provides links to resources that provide clear guidance on deducting
and capitalizing your expenses.
3. Personal Property
Tax and Part-time Business Vehicle Use
states require vehicle owners to pay property tax on vehicles used for personal
use. Some states, such as Virginia,
also provide tax relief for vehicles that are used predominantly for
non-business purposes. If you are in doubt as to how part-time business use of
your personal vehicle affects your property taxes talk to your state's
revenue office - and remember, the IRS
does let you deduct property tax fees as a business expense.
Small Business Tax Guide (Business.gov) - Unique because it brings together
small business resources from across many disparate government Web sites and
presents it in an easy-to-digest manner. Includes advice on everything from
deductions to employment taxes to collecting sales taxes.
*Free Small Business Tax Advice from Uncle Sam (Allbusiness.com)
*Tax Deduction 101 for Small Businesses (Allbusiness.com)
Should Own the Business Car?
*Note - Hyperlink directs reader to non-government Web site.