[Self-Employed TurboTax VIDEO #5] How To Write-Off a Vehicle? Actual Method vs. Standard Mileage

how do I take a tax deduction for driving my car how do I write off gas I spend on driving for myself employed or contract our business Amanda here from the business finance coach where I'm simplifying finances and helping you grow yourself employed work into a business welcome to the fifth video in this TurboTax entry series and in this video I'll be explaining the write-off while walking you through it in TurboTax all right so let's answer all of your questions about how you take a vehicle expense deduction for your self-employed business for taxes now we're on our summary page for everything for this business we'll scroll down and now we're gonna go into the business vehicle expense now I already started adding this vehicle and I'm going to go through it quickly with you and explain this deduction first there's some things to know about the vehicle expense deduction you cannot choose gas for certain trips and write that off instead of being able to choose certain expenses there's two methods for writing off your car expenses for either method you have to keep track of your miles that you drive and then there are two different options for calculating the amount of your vehicle write-off the first method is called the standard mileage rate method which is just taking something around 50 cents a mile it changes a little bit every year times your business miles and then that's the deduction the second method is the actual expense method as it sounds this involves all of your actual expenses for running your vehicle so you know just keep track of gas for your business trips you keep track of all of your gas all of your repairs all of your maintenance tires in the car everything to do with maintaining your vehicle the actual expense method can require keeping track of a lot more things and be a lot more tedious in either case you have to keep track of all your business miles for the actual expense method you have to keep track of all of your personal miles too because once you add up all of those actual expenses you get to take a percentage of those actual expenses okay so these questions we're gonna go through at first help you determine if you qualify and for which method of calculating your deduction you qualify for because like all things taxes there's a bunch of rules and the vehicle deduction much like the home office deduction is one of those things that's part personal so in reality there would be no deduction for it because it's personal but because there are lots of rules that give the self-employed more write-offs okay so I'm gonna click Edit and show you my Honda Ridgeline so they asked us about the vehicle and the date we started using the vehicle for business will continue so they want to know if we own our vehicle because if we don't own the vehicle we don't qualify to take any vehicle deduction if we lease the vehicle then some of the rules are a little different and I'll tell you about those later was this vehicle available for personal use in 2017 yes this film vehicle was available for personal use did you have another vehicle available for personal use yes I had another vehicle why are they asking these questions they should make sense so if your vehicles use 98% for business or let's say a hundred percent for business and you had no I didn't have another vehicle available for personal use that doesn't make sense and could certainly be a trigger did you document any of the work miles you drove for this business yes I document to my work miles again that wouldn't really make sense if I didn't document it because it's required now the IRS can ask to see your mileage log and a mileage log means that you keep track of every trip you take in your car and you can do this easily with apps the information you need about each trip is the date odometer readings starting and ending the purpose of the trip what was business-related about it and the the total distance of miles so these apps these days take care of all of this for you and you can go in and quickly just give a business purpose or mark your trips as personal that's a great way to keep track of your miles and I guarantee you you probably have more miles than you realize if you drive a lot for business how do you want to enter your mileage so now you get the choice you can enter your odometer readings or you can just enter your totals so I did 9,000 total miles and then 5,000 business miles and the total miles includes your business miles business miles involve driving for business purposes it doesn't include commuting commuting is driving from your home to your primary work environment that's not deductible okay continue how many vehicles did you use for your business zero to four now the software tells me you've got a standard deduction of two thousand six hundred and seventy five dollars now if I choose to go with the standard mileage deduction I'm almost done they took five thousand times fifty cents per mile or so and that's my deduction do you want to see if your actual expenses give you a bigger deduction yeah let's do it so you can see like that's pretty quick to enter if we're doing the standard mileage reduction if we do the actual method it's going to be a bit different so now we enter our total expenses for the entire year so gasoline four thousand oil seven hundred tires eight hundred repairs and maintenance vehicle inch registration license fees garage rent which you pay to park other expenses these are all of your expenses and what do they mean by other towing charges auto club dues amounts you spend for washing waxing and detailing vehicle accessories small parts car and truck repair tools tires fixing flats so really everything you spend on your car okay let's get some info about who use this vehicle they want to make sure that the person using it is a 5% plus owner in the business this is a specific question on the tax form what is your vehicle use for higher like a taxi or limo service no that would be like uber or lyft did you purchase your Honda Ridgeline new did you train another vehicle to purchase your Honda Ridgeline no when did you acquire it now I used the same date that I started using it for business I said this was the day I purchased the vehicle and this is the date I started using it for business even if I didn't use it that day as long as I was working for myself in this business on that day that would qualify because if it was personal before I started using it for business things get a lot more complicated and it's not typically in your favor for depreciation rules continue now they want to know what you paid because this amount you can't deduct it all at once but this is what depreciation expense is about depreciation expenses allocating that cost of this asset something we use to make money in our business that will last more than a year we're allocating that cost over time and deducting it each year that's what depreciation expenses continue so they give me an option here because part of depreciation expense is called special depreciation and one type of special depreciation is called section 179 and that allows you to deduct a portion a larger portion upfront with other types of assets you can deduct the full amount but with vehicles there are much stricter rules my business use percentage is fifty five point five six percent that was that five thousand miles over nine thousand miles so they give me the maximum amount of a section 179 deduction I could take one thousand seven fifty six so I enter that here I say okay I'll take the full deduction why might you not want to do that well if you don't have too much income and you're getting near a loss if you don't take it now you'll get it in the future when you have more income so why not do that if you don't need the deduction this year and we can click you can see our recommendations and that kind of explains exactly what I was saying the other thing to realize about taking section 179 is that if you start using this vehicle for less than 50% for business then you have to recapture that section 179 expense so you may not want to take it this year if you're not sure you're going to use your vehicle for more than 50% for business going forward and you don't want a surprise tax amount of almost two thousand dollars and so again you'll have to recapture that if you stopped using the vehicle for business or if your use falls below fifty percent because a vehicle is what's called listed property for assets and depreciation listed property is something that's entertainment qualifies as entertainment any assets that are used for entertainment like cameras microphones vehicles computers if they're less than fifty percent the special depreciation rules get a little at less advantageous because you're not mostly using these assets for business you're mostly using them for personal reasons okay so I said I'll take the full amount let's go for it continue now this is a really nice feature that TurboTax has it's asking us how long do you plan to use your vehicle for your business you don't have to do this but they're just gonna figure out a comparison between what your deductions would be over the the years to come under the standard method versus the actual expense method because why do all this work and use the actual expense method if you might have a bigger deduction with the standard mileage rate method or if they're almost the same or so continue and now they show me a comparison based on the information I just entered if that all stays the same over the next four years my actual expense deductions will total twenty nine thousand nine hundred and seventy five dollars versus my standard mileage deduction would be ten thousand seven hundred over the next four years if everything stayed the same now one thing to keep in mind is that if I choose the actual expense method now I can never switch to the standard mileage rate method if I use the standard mileage rate method in the future I can change to the actual expense method the actual expense method is the highest in the first year because of depreciation and once you lose that first year depreciation you don't get it in the future years so you can still switch at any time however if you lease your vehicle and you use the standard mileage rate method you cannot switch to the actual method in the future if I choose the actual expense method I have to stick with it so I'm gonna choose it let's do it and then these expenses are driving related expenses that you can deduct regardless of how you choose to write off your vehicle whether you use the standard mileage rate method or actual expenses you still get to deduct parking fees tolls local transportation property tax portion of your vehicle registration fees in interest paid on your vehicle the business portion of that amount we'll qualify for this write-off and the way you know what to enter here is if you only entered your business miles and you took the standard mileage rate method then you need to take your total interest and divide out the portion for business and enter that here however if you included your total miles like I did the total miles 9000 then you can simply enter the entire amount for the whole year and TurboTax will calculate the percentage of that that's for your business and remember these little learn more buttons very useful okay we're gonna continue great news so my actual expense method was seven thousand seven hundred and eighteen dollars much greater will continue and we're back to the vehicle summary every year when you come into TurboTax your vehicle will carry forward in the year you stopped using it for business you'll need to click Edit and on this first screen check the box I stopped using this vehicle in 2017 and remember if you took any special depreciation you will be prompted to recapture that depreciation expense as ordinary income so it's just text you can add another vehicle if you stopped using this one and with that we'll click done and we have finished the business expense section be sure to check out my other videos in this series going through TurboTax covering inventory assets other situations if you have any questions I'd love to hear from you in the comments below if you liked this video it would be awesome if you let me know by hitting the like button and if you're self-employed you want to organize your finances and grow your self employed business be sure to click the subscribe button in the watermark but that may be gone you may see my head above me here click that to subscribe and happy tax season I will see you next time bye

Channel: Business Finance Coach

Views: 61,633

Keywords: how to write off gas?, how, to, write, off, gas?, how to write off a vehicle?, vehicle, self employed, schedule C, self, employed, LLC, Actual Expense Method vs Standard mileage method, actual, expense, method, actual expense vs mileage, vs, standard mileage rate method, standard mileage, standard, mileage, rate

Id: 0XGk_8vX6rE

Length: 15min 30sec (930 seconds)

Published: Sun Feb 18 2018