Cars are among the most costly items anyone can own but you can use them to reduce your taxes by writing off car expenses. You can great deal on taxes considering the initial cost of purchasing and expenses incurred due to ongoing maintenance. It is fortunate that there are legitimate ways of offsetting such costs through tax deductions. You may, in fact, qualify for one of these options, which pertains to an individual, self-employed, small business or other business deductions. Ignoring such government incentives could exclude a person from enjoying tax savings. You can get complete details about writing off car expenses on the IRS website.
You can consider donating your automobile to charity as opposed to making some profits by disposing of it in used form. Taking this option saves you the trouble of posting an advert along with the rigorous process of negotiating with potential buyers for its sale. If your vehicle is not worth an attractive value, donating this would qualify you for a deduction equivalent to its current market value. A lot of charitable organizations might even pick up the car you donate themselves. This kind of tax deduction could apply to personal as well as business use. As such, it is necessary to ensure obtaining an official receipt from the involved charity, inclusive of the value of your donated vehicle. Writing off car expenses is a great benefit but doing so without a receipt can result in tax penalties in the future.
If you intend to keep your car and are keen on reducing emissions, you may consider investing in an electric drive conversion kit. You may hire it from an auto repair mechanic for installation onto your car or have the professional do it on your behalf. Before purchasing the kit, seek the opinion of a mechanic concerning whether your vehicle is worth undergoing conversion. In certain situations, like older vehicles with a short lifespan, the cost of conversion could be an investment that is not worthwhile. Converting a newer vehicle with a good shelf-life might earn you tremendous savings on daily fuel usage. Such an exercise could also afford you an individual tax credit of up to $4,000. This form of tax credit that applies to conversions got phased out on December 31, 2011.
In case you bought a hybrid car either on or prior to January 1, 2011, an individual tax credit is available that directly deducts a certain percentage from the federal tax you owe, dollar for dollar. The credit program has now been phased out however, implying hybrid car you cannot claim purchases done after this date on your taxes. Business enterprises may also fall under this tax deduction as well. This applies to purchases of new hybrid vehicles or even when you have restocked your fleet of business vehicles with hybrid vehicles before the deadline. Hybrid vehicles can prove quite costly to buy, but the tax reduction offset along with money saved on fuel could turn to be a smart investment.
If operating a small business and have a car that is exclusively used for business, this can add to annual tax deductions being part of your operating expenditure. The cost of overhauling a business car does not qualify as a type of deduction, but you may deduct the repair cost. In such a case, capitalization cost must include overhauling and be factored into the cost of depreciation. It is important to maintain clear records of auto repairs since the IRS frowns upon simple acts of making claims based upon estimated costs.
A freelance professional or self-employed individual can legitimately deduct the cost of business use for even personal cars. This method is ideal for individuals who operate a sole proprietorship, as opposed to a legal business structure like a corporation. What matters most here is separating business from personal use. This can be performed through tracking mechanisms such as CarCheckup, a small gadget that plugs into the car for business trips. It then uploads mileage details along with related data to the computer once plugged in via USB.
Owners of personal cars who have utilized them for business-related matters can claim such expenses as a tax deduction. This applies if they are employees who have not been reimbursed by the employer. Such expenses might include costs of maintenance and fueling. Under normal circumstances, their cost is calculated per mile, which is updated on a regular basis by the IRS. The key, just as pertains to self-employed tax deductions, is keeping clear records and differentiating between personal and business use.
Unless using the car exclusively for business objectives, one is not permitted to deduct the full cost associated with its purchase, repair, and maintenance. It is, however, advisable to make all deductions allowed. Ensure to attach all the necessary documents required to show support for your claims.
By filing clearly-outlined tax forms indicating itemized individual deductions with the IRS, you may duly claim all of the above tax deductions and incentives. Deductions reduce taxable income resulting in lower next taxes. Depending upon your records, you might end up paying less tax or benefit from a larger refund sometime later. Keep a log to help you in writing off car expenses.