Although you might hate paying taxes for the profits generated by your business, there are a number of ways to bring down your taxable income significantly by using all the deductions that can be used by you. You are entitled to a number of deductions for your business expenses. You should definitely use them so that you are able to use the IRS tax laws to your advantage.
Before you actually decide to deduct an expense, first confirm if the expense incurred by you is a necessary and ordinary one. An expense is considered to be an ordinary one if it is commonly used and accepted in the industry that you are doing business in. On the other hand, an expense is considered to be necessary if it is needed and apt for your business. If you can fulfill both these criteria, then you can get these deductions approved by the IRS.
Cars are one of the key sources used to deduct expenses for your business. If you are using a car or more than one car for your business, then you can easily deduct the expenses incurred because of the car/s from your taxes. But you will need to maintain a proper record to get the benefit of your car’s deductions. You can maintain a log that records the mileage of your car. Besides this you also need to keep all the receipts that you get when you incur any car-related expenses.
You need to maintain a record of the total usage of your car for all your business needs throughout the year. Although you don’t need to provide any kind of documentation of your car’s use when you pay your taxes, you may have to keep any type of evidence that will support your claim in case there is an audit. So feed in the details of all your car trips that are used by you for your business needs. Keep a track of the people you meet, the reason for the meeting, the timing, the distance covered by your car and finally the to and fro destination that was covered by your car for the business meeting.
You can collect all the receipts of the gas put in your car, parking expenses, car repairs and any other expenses related with your car. These receipts will need to be filed by you as they will be useful in proving your claims in case there is an audit.
You can calculate your car’s deduction either by using the Standard Mileage Rate method or the Actual Expenses method. In the Standard Mileage Rate method, you need to total all the miles traveled by you throughout the year and multiply the same by the Standard Mileage Rate given for a particular year when you are filing your taxes. This rate changes every year so always choose the right rate. On the other hand, if you want to use the Actual Expenses method for your deductions, you have to add all the expenses that have been incurred by you in owning and running the car. You can then break up the sum with the percentage of time used by you for your business needs, so that you can arrive at your car’s final deduction. Choose the method that suits your needs.
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