As an entrepreneur, you may have heard you can write off your vehicle through your business. This is true (kinda)! However, it’s not quite as simple as most social media influencers make it seem 🙃
At Collective, we always want to make sure we are keeping your accounting simple while being compliant with the IRS to keep you out of future trouble.
First, let’s talk about how to recognize the business miles driven on your personal vehicle by using the standard mileage rate and how we will capture it on your Profit and Loss Statement to increase your S Corps expenses.
Second, we will talk about that rare chance that your vehicle counts as a complete business expense and how we would account for it.
Business Miles Driven on Personal Vehicles
Most of our solo entrepreneur members work from home, or a co working space, and sometimes travel to appointments or work related activities and use their personal vehicle for travel.
For personal vehicles used for business, you don’t want to track gas, maintenance, repair, lease, and loan expenses for your car. Instead, you’ll track business miles driven and multiply it by the annual IRS mileage reimbursement rate.
The IRS lets you count 3 things as expenses when it comes to your personal vehicle.
Parking fees (not tickets)
All expenses such as loan payments, repairs, maintenance, and gas should be paid for through your personal account. Parking and toll fees can be paid through your business account. We will capture the mileage reimbursement through our Accountable Plan.
Business Vehicle Qualification
In rare cases, our members have vehicles that are used 100% for business use. Some examples include: landscape and moving companies, medical device sales, and mobile IV unit services. In this case they could not operate their business without this vehicle.
All of the following requirements must be met in order for the vehicle to be treated as a company vehicle:
Was the vehicle purchased using the LLC's name or is the vehicle title in the name of the LLC?
Is the vehicle a 100% business use vehicle?
Do you have an additional car for personal use?
Is the vehicle an ordinary and necessary business expense?
Have you been keeping mileage logs?
If you believe your car qualifies, we will need to collect purchase agreements, loan documentation, and other related documents. Please bring this up and discuss with your onboarding accountant.
What if my previous accountant said I could deduct the full cost of my personal vehicle?
Collective takes a very conservative stance to protect our members on items the IRS commonly flags for audits. Cars are specifically called out to the IRS on tax returns and are a highly audited item. If it's not a car that is used exclusively for business purposes, it's difficult to substantiate the expense. Your previous accountant may have been willing to take more risk. Also, tax and accounting advice changes once you an S Corp.
If your car was previously treated as an asset and depreciated before coming to us, please let your onboarding accountant know and we will work with the tax team to come up with the best plan going forward.
We will need very detailed policies surrounding how the car is to be used and how income will be measured and captured, which creates a lot of administrative burden.
This is the reason why many of our solo entrepreneurs don’t qualify. If you work from home, meaning your commute to work is from your bed to your desk, it might be hard to convince the IRS your business requires a business vehicle 😅
Happy driving 🚗💨🚗💨