You may have heard about various friends or self employed acquaintances that mention they can write off certain car expenses, such as car detailing costs, repairs, or gas expenses. You also may have wondered how this can be and who exactly gets to use this benefit, why that is the case, and how to do it correctly and successfully.
Writing off these costs does not apply to everyone, of course, but certain people who use their cars for business purposes are able to benefit from writing these expenses off on their taxes. Tax preparation can be a headache for anyone, and more often than not, the average person is unaware of what they can and cannot actually write off while preparing this information. Even further, those who are self employed have a much wider variety of expenses that can be written off, although some of the methods of this can vary.
According to the IRS, you are allowed to write off car detailing and other car related expenses if you are a person that uses your car to complete business related tasks, such as meeting clients or driving to deliver your product to a post office or directly to a customer. Many self employed people fall into this category but even if you are not self employed, this can still apply if it is your personal car that is being used.
This can seem overwhelming and confusing if you are not aware of the rules and standard practices in order to do this. If this is your first tax year claiming these sorts of expenses, you want to make sure you do everything correctly and, more importantly, are getting every cent you deserve. In this article we’ll explore who can write off car expenses, what expenses are included in this, and the two methods in which to do this accurately and completely.
Who Can Claim car Detailing Costs On Tax?
Car detailing and other expenses can only be written off if you use your vehicle for business purposes. This could be because you are self employed or because you use your personal car when completing tasks for your employer.
A conscious and organized person should keep a mile log so that the amount of miles driven for business purposes versus personal purposes can be easily deduced. There are applications that can be used to help track these miles, or just standard simple record keeping will do the job here. It is best practice to simply find the system that works best for you, and ensure you are meticulous with keeping it updated.
Something that is important to note (and is often frustrating to the average commuter) is that you cannot claim mileage or car expenses for just simply commuting from your home to your office. Unfortunately, this is something the IRS has decided and even if your commute is long and frustrating, this does not count as an acceptable business expense for your taxes.
There are essentially two methods to deducting vehicle related expenses for business purposes. They are known as the Actual Expenses Method and Standard Mileage Method. Each method has its own benefits and downsides, and tax experts often suggest that each method be calculated to see which will yield a better return.
We will now go through the basics of each method as well as how to successfully file using each one. As mentioned, situations will of course vary on your specific vehicle and business situation, but it is helpful to understand the difference and the benefits of each method.
Actual Expenses Method
The first method we will explore is the Actual Expenses Method. It essentially means that the vehicle owner keeps track of the actual amount of expenses for the vehicle during that business year. They are then able to deduct these expenses on their tax return and receive a return that includes these expenses.
There is a pretty large variety of things that can be written off in this method. These include: gas and oil, insurance, lease payments, repairs and tune ups, depreciation, tires, and any registration fees. In this group of allowed expenses, car detailing would be included in the “repairs and tune ups” category.
This method works better for those who have a more expensive vehicle (such as a minivan or SUV) or just have many expensive fees associated with it. Additionally, this method usually yields a bigger return for those who have less mileage on their cars.
There are two main downsides of using this method. The first is that you are required to keep very detailed records in order to claim these expenses on your taxes. Each expense that is claimed should have associated documents to back these claims up, and if you are not a very organized or detailed oriented person this could prove difficult.
Additionally, if you use the actual expenses method you are unable to switch to the standard mileage method during any later tax years. This essentially means that if you choose this method, you need to be comfortable knowing that this is the method you will use each year with this vehicle. That may not be an issue, but some vehicle owners may not like having a lack of an option to switch if they wanted to.
Standard Mileage Rate
The Standard Mileage Rate method for calculating vehicle expenses is just multiplying the mileage used for business purposes during that tax year with the standard mileage rate set by the IRS each year. This rate varies slightly each year and is calculated by the IRS based on inflation.
Using this method, the vehicle owner simply needs to keep track of the mileage during the tax year used for business purposes. The rate provided by the IRS includes the cost of gasoline, oil, repairs, maintenance, general wear and tear, and more. Because of this, car detailing falls into the type of expense covered in this rate. Once the appropriate rate is correctly calculated, the vehicle owner can claim these expenses on their taxes.
As mentioned, the biggest benefit of using this method is its simplicity. It is much, much easier to simply keep track of the amount of miles driven rather than keeping track or a receipt for every vehicle related business expense.
This method is also generally a better choice for those who have smaller, less expensive cars and also for those who log a large amount of mileage each year. You also have more flexibility in future years using this method. If you choose the standard mileage method, you are able to switch to actual expenses in the future if you wish, which, as we mentioned, is not the case if you choose actual expense method during the first year of your vehicle’s lifespan.
When choosing between these two methods, you can use some common sense or intuitive decision making skills. Based on the type of driving you do and the type of vehicle you drive, it should be pretty clear which method will yield the best return.
However, it is best practice to try to calculate both to see which will be best for you and your wallet. Keeping this in mind, if you are an employee that uses your vehicle for business purposes, it is recommended that detailed records and documentation be kept, whether it be for business mileage or other expenses. That way, when choosing between the two methods, you have the option to choose whichever is going to get you the best tax return.