Did you know there are certain personal expenses you can claim on your tax return if you also use them for business? Two of the most common expenses in this category are costs relating to personal vehicles used for business and home office expenses.
But . . .
If claimed incorrectly, these expenses can also trigger an audit. That’s where our small business tax services come in. We calculate these expenses based on current tax laws, so they not only reduce your tax bill but’re also accurate.
Claiming Vehicle Deductions
You can claim a portion of your personal vehicle expenses if you use the vehicle for business purposes. There are two methods available to claim expenses relating to a personal vehicle used for business: actual expenses incurred (prorated for the business portion) or the IRS mileage rate. You cannot claim both. If you do, whether on purpose or by accident, this will likely result in an audit.
To calculate the business use portion, add all the miles travelled for business purposes, then divide that number by the total miles driven, and multiply by 100. This will give you a business use percentage. Once you have this percentage, use it to prorate your fuel, oil, vehicle insurance, parking, and vehicle repairs paid. This prorated amount is your business vehicle expenses.
If you plan to use this method to calculate the business portion of your vehicle expenses, keep a notebook in your vehicle at all times and record the date, the starting odometer reading, how far you drove, and the purpose of the trip. There are also many apps today that you can download to your phone that automate this process for you.
The second way to claim vehicle expenses on your business tax return is the flat rate method. The flat rate is set by the IRS each year. For the 2020 tax year, it is 57.5 cents per mile. For 2021, the rate is down to 56 cents per mile. There are special restrictions as to when you can use the per-mile rate for calculating your vehicle expenses.
At Brook Bay Consulting, we can help you determine which method is the best choice for your business through our small business tax services.
Calculating Home Office Expenses
Like vehicle expenses, home office expenses come with special restrictions too, and claiming them incorrectly can trigger an audit. When done correctly, claiming home office expenses can help reduce your tax bill.
In order to claim home office expenses on your business tax return, the workspace must be used exclusively for conducting business on a regular basis. There are also two ways to calculate this deduction: calculating the portion of the space used for business or using a simplified method.
More details about claiming home office expenses can be found in this IRS Tax Tip.
Are you nervous about a tax audit? There’s no reason to be when you use our small business tax services. Our tax planning and preparation help you maximize your deductions and credits so that you can save as much tax as possible. Schedule a call today to learn more about how we can help you plan to save.