Unpopular opinion: your car doesn’t have to be a financial burden. There, we said it.
In fact, your car could save you a ton of money come tax season, especially if you use it as part of your job. Most people know about standard mileage rate and mileage deduction. What about the rest of those money-saving gems hidden in the unfriendly confines of tax law?
Don’t you wish you had advice from a professional? We’ve got you covered. Enter CPAs Lisa Green-Lewis and Stephen Krieger. Lisa is a Tax Expert for TurboTax, one of the most popular income tax preparation software packages. Stephen heads up his own tax practice in St. Louis. They shared the most important things to think about when you look for deductions, and here’s some of their advice.
1.) The miles you drive to qualifying professional development classes and workshops
There’s a lot of red on that table. Professional development classes aren’t to be trifled with.
“You can deduct the standard mileage rate if you drove to classes that help you improve or maintain your job skills.” – Lisa
Taking a class to master the witchcraft of Excel? Not only will you be taming the spreadsheet beast, but you can save money too! Lisa tells us that in order to qualify for this write-off, there are a few qualifiers:
- The course or courses are required by your employer or law to keep your present salary
- Meets minimum educational requirements of your present trade or business
- Does not qualify you for a new trade
- You Itemize on Schedule A or File Schedule C
Make sure you check your Ps and Qs before you sign up for Advanced Excel Wizardry.
2.) The miles you drive to job interviews
A stylish watch and a bomber jacket make excellent interview attire.
“The 2015 standard mileage deduction may apply to your travel while looking for a new job!” – Lisa
Even if you don’t land the new job, you can still apply for the deduction. We hope you get the job, but the deduction is a nice silver lining, right? The write-off qualifiers:
- The trip must be directly related to your job search. Sorry, you can’t squeeze in your personal mileage for driving to your summer vacation escape. However, you can deduct part of the mileage related to traveling to an interview if you mixed business with pleasure.
- You have to itemize your deductions and claim them as an unreimbursed expense.
3.) The car you bought for your rideshare or delivery gigs
As if the pink mustache wasn’t taxing enough.
“This can be one of the most surprising tax deductions: if you are a freelancer who uses your car for business, you may be able to deduct a big chunk of the price you paid to buy a vehicle that is over 6,000 pounds, but under 14,000 pounds (like an SUV).” – Lisa
Do you have a big scale? (Most recycling centers do!) You can deduct up to a whopping $25,000 for your car based on a percentage of business use. For example, if you use your vehicle 80% of the time for business, you could deduct 80% of $25,000 for a total of $20,000. This is called a Section 179 Deduction and is HUGE for rideshare drivers who buy a car for work. Even if your vehicle is under 6,000 pounds, you may be able to deduct up to the allowable depreciation amount. Is there a catch? Sort of. You can only claim this deduction in the year the vehicle is first used for business. If you used your vehicle for personal use first and you started rideshare driving later, it doesn’t qualify. Bummer.
Just remember, when you’re picking up the gaggle of obnoxious passengers, it may be helpful to repeat to yourself the mantra, “Big tax write-off. Big tax write-off…”
The qualifiers for this deduction are a little tricky to fit into this post, but you can read more about Section 179. Of course, if you have any questions, ask your tax professional.
4.) The miles you put on a U-Haul or a trip to the ER
Curiously, moving sometimes leads to ER trips. Be careful, gang.
“Another rule that is sometimes surprising to people is that in addition to business miles there are situations where a taxpayer can deduct miles for medical, moving, or if they used their vehicle in charitable service. The rates are lower than business miles but every little bit counts.” – Stephen
Suffer a traumatic toe stubbing and have to drive to the hospital? Deduct the trip.
Zipping between your five different volunteer non-profit board meetings? Saints get deductions, too!
Did you move to a new house because of a new job? Is your new job 50 miles away from you old job? Yeah, you can deduct that, too.
You’re swimming in money now. Of course, make sure you ask your tax professional if there are any caveats.
Beware of Tax Code Gotchas
Choose the method of deduction that works for you long-term
Standard Mileage Rate or Actual Expenses: Which method of tax deduction should you use?
It’s not this hard. Really.
Stephen breaks down the difference between the two methods.
“With actual expenses, you’ll need to divide your business miles by your total miles to get your business percentage. That percentage will need to be applied to indirect expenses like repairs.”
“If you are using the standard mileage rate, you’ll need to know your business miles to multiply them by the standard mileage rate.”
Let’s look at the math: You paid $6,000 for repairs, gas and oil over the year. Fees and taxes came out to $1,000. Loan interest and insurance were $3,000. You might have an old car, so let’s pretend there’s no depreciation write-off. Your total “actual” expenses were $10,000.
Your total mileage was 36,000 and your carefully documented business miles were 32,404. Your business-use percentage is 90% (32,404 divided by 36,000).
If you use the actual expenses method, you could deduct $9,000 (90% of $10,000).
If you use standard mileage rate, your deduction would be $18,697 (32,404 miles x 57.5 cents per mile for 2015. In this case, the standard mileage method gives you the bigger tax benefit.
Choose wisely, because you can’t switch methods once you’ve picked one
“I’ve made a huge mistake.”
“One rule that people sometimes do not realize is that you cannot switch back and forth between methods from year to year based on which will benefit you most.” – Stephen
Just when you thought you found a way to stick it to “the man.” If you choose “actual expenses” you must continue using this method for the life of the car. Stephen says that many of his clients use the standard mileage rate over time because they get more benefit and it cuts down on expense tracking all year.
You don’t necessarily have to make that choice on your own. Programs like TurboTax can help you make that decision without you having to learn any tax laws yourself.
Both experts agree: Your main focus should be on good record keeping
“Solid record keeping can save you a lot of time and headache should you find yourself dealing with an IRS audit or otherwise draw scrutiny from the IRS.” – Stephen
Lisa also stressed the importance of good record keeping. It makes sense. You can’t worry about how you’re going to make money back if you can’t prove it’s owed to you. Lisa suggests using a log book or a program like Intuit QuickBooks Self-Employed to keep track of expenses.
How can you keep good records?
No, you can’t link your Moleskine to your Automatic account.
Sure, you can try and keep track of things in Excel, or even write them down in a trendy Moleskine, but there are other handy programs available to you. If you have Automatic, you can use Concur, Expensify, SherpaShare, TripDots or one of the many other apps for business we have in the Automatic App Gallery.
The powerful combo of Automatic and these apps allows you to track your mileage, tag business trips, see route maps and even get visual receipts.
SherpaShare, Expensify and Concur available in the App Gallery
Write off your miles? Share your own tax tricks on Facebook and Twitter
Finally, you’ll have something in common with a cartoon duck!
After reading all of those tips, you might feel like you have a fighting chance to get some of your hard-earned money back come tax season. Still, we recommend that you talk to a professional to get the most benefit.
Which one of these tips was the most surprising to you? Which one do you think will help you the most? Let us know if you have any questions about what you’ve read here on Facebook or Twitter.
The above post is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.