If you plan on leasing a car that you will use for a business, you have the possibility to write off a percentage of your monthly payments as a tax deductions. The business deductions for car lease are considerable but you will have to be careful to do the calculations correctly.
First of all, you will need to track the amount of time that you spend in the vehicle for business purposes in a log. This log can include travelling to business appointments, running business-related errands as well as other business duties. The amount of time should be expressed as a percentage of your total car use time.
You will also have to figure out the total amount of money you have paid for the car lease over a year and this will be the sum total of your monthly lease payments.
The third step would be to deduct the business use percentage of the lease payments from your income taxes. To give you a relevant example: if the car you have leased is used 50% of the time for business purposes, half of the total payments that you make can be taken as a tax deduction.
Do not forget to add up the other car-related expenses, like repairs, maintenance, insurance and of course, gas. The exact same percentage of these expenses can be deducted for business purposes. You will have to factor in the “lease inclusion amount” when considering business deductions for car lease. The vehicles that cost over a certain level are subject to a fee that will reduce the amount of deductible lease expense. To figure out this amount – check the IRS publication #463.
This is a list of IRS requirements for keeping records: the total annual mileage used mileage for each business purpose use, date the car was put to use for business purpose, cost of the car and any additional improvements as well as total cost of each expense.
You will have the possibility to use two methods, according to the aforementioned IRS publication #463. The first one is called Standard Mileage Rate Method and involves taxpayers that have to document the mileage of the car used for business. For a vehicle owned, this method must be used in the first year of the car is put to business-purposes use. This method is based upon mileage and not on the expenses which means that the actual expenses cannot be deducted when the Standard Mileage method is used. When using this method, the following cannot be deducted: depreciation, lease payments, maintenance, repairs, insurance and oil.
The Actual Expenses Method uses the actual costs incurred for operating a vehicle for business purposes. Actual expenses may include: lease payments, registration fees, depreciation, oil, gas, tools, parking fees, garage fees, insurance, repairs and tires.
You might also want to read:
Post tags: Tags: Business Deductions For Car Lease