Cars are one of the more pricey items to acquire, both in terms of the initial financial investment we make in them and in the price of ongoing maintenance. Fortunately, there actually are good ways in order to offset these costs with tax deductions. Anyone might qualify for several of these options for personal, small company, freelance or business deductions.
1. Charitable Bestowals
If your old car isn't going to make it much longer, and the cost of repair isn't worth the investment, consider donating it to charity rather than trying to make a little money selling it used. And if you know your car isn't worth a whole lot, you may be better off donating it, which will give you a deduction for the market value the car still has.
2. Hybrid Cars
If you purchased a hybrid vehicle on or before January 1, 2011, you could get a tax credit that directly subtracts an amount from your government tax owed, dollar for dollar. Sadly, the credit system phased out, so hybrid vehicle acquisitions after January 1, 2011 can not be claimed on your taxes. Companies might be qualified for this tax deduction too, if you've purchased a new hybrid car or restocked your business fleet with hybrid vehicles prior to the deadline. While hybrid vehicles can be fairly expensive, the offset from a tax deduction, plus the money you'll save in fuel, can make this a smart investment.
3. Convert Your Vehicle
Maintaining your current vehicle but wanting to lower exhausts? Look into a electric drive conversion equipment, in which you can hire a qualified mechanic to install onto your vehicle. Before you purchase the equipment, ask for a mechanic's point of view on whether your car is worth transforming; in some cases, such as on older cars that don't have much life left in them, the cost of conversion may be an investment not worth making. If you have a newer car with a lot of life left in it, converting can save you on fuel daily as well as giving you a nice tax credit, up to $4,000. The tax credit for conversions phases out on December 31, 2011, so convert your car this year.
4. Take off Company Usage
In case you are a freelancer and otherwise self-employed professional, you may subtract the expense of business use, even if it's on your personal vehicle. This is the best method for those who work under a sole proprietorship rather than as a legal business structure such as a corporation. The key here is to separate business use from personal use, which can be done by applying some form of tracking mechanism like CarCheckup, a little tool which plugs into your vehicle for company travels and then posts mileage info and other data to your computer when you connect it in via USB.
5. Small Business Fleet Deductions
If you're running a small business, a vehicle used exclusively for business can add to your yearly tax deductions as part of your operating expenses. While the cost of overhauling a business vehicle doesn't entitle as a deduction (overhauling must be included in capitalization cost and calculated in the depreciation cost), the cost of repair can be deducted. Keep clear records of repairs, because just claiming an estimated cost won't go more than well with the IRS.
6. Business Spendings That's Not Reimbursed
In the event that you're employed by a business and have actually used your own personal vehicle for business-related purposes, you can claim those expenses on your tax deduction if your company has not reimbursed you. These kinds of expenses could include fuel costs and maintenance, and are usually best calculated by utilizing a per-mile cost, in which the IRS updates regularly. As with self-employed tax deductions, the key is to keep lucid documents and differentiate among company usage and personalized usage.
The Bottom Line
Unless you're using your car exclusively for your business, you can't deduct the full cost of purchasing, maintaining and repairing it. (Besides creating ongoing income and capital appreciation, real estate provides deductions that can reduce the income tax on your profits.
Moreover if you know your car isn't worth a whole lot, you may be better off donating it, which will give you a deduction for the market value the car still has. Companies might be eligible for this tax deduction too, if you've purchased a new hybrid car or restocked your business fleet with hybrid vehicles prior to the deadline. Before you purchase the kit, get a mechanic's opinion on whether your car is worth converting; in some cases, such as on older cars that don't have much life left in them, the cost of conversion may be an investment not worth making. The key here is to separate business use from personal use, which can be done by applying some type of monitoring mechanism like CarCheckup, a small device which plugs into your car for business trips and then uploads gas mileage information and other data to your computer when you plug it in via USB.
Except if you're using your automobile exclusively for your company, you cannot take off the full expense of acquiring, maintaining and also servicing it.