If you travel extensively for work, you might want to claim your car lease in your tax deductions. With all those miles, you can run your car ragged, and that only means more money from your pocket in maintenance and insurance fees. With a lease, you get to circumvent a lot of these costs, but that’s still a major work expense every month, especially if you could otherwise get along without a car. Luckily, you can usually claim at least a portion of your car lease on your taxes.
Is It a Business Car?
Let’s be honest. Everyone has probably used their car (leased or otherwise) to make a business trip here and there. In some cases, you went away from a company retreat, while for others, you were merely the intern grabbing an overly complicated and specific order for non-paying supervisors. Regardless, if you fall into these or similar categories, you probably won’t be able to deduct your lease at all.
To qualify for the deduction, a significant portion of the time you spend in your car should be business or career related. This can include making trips for interviews, delivering packages or shuttling clients. For example, if 40 percent of your trips in the past months were business related, you’ll be able to write off a significant chunk of your monthly lease.
Keep a Detailed Log
If your car isn’t 100 percent for business use, how can you prove to the IRS that you really do spend 40 percent of your miles traveled on business trips? The answer is pretty simple: keep a detailed log of your travels. You’ll need to make note of your personal and business travels to showcase how many miles apply to each category. You may be asked to submit this log to prove your deduction claims, so try to be as accurate as you can.
When the log is all said and done, you should be able to deduct 40 percent of your costs in the example we’ve used. However, if you log shows that 60 or 80 percent of your miles were spent on business travels, your deduction will increase accordingly. This deduction is recorded as a business expense in your tax returns.
The IRS Wouldn’t Let It Be That Simple
Doesn’t the log and percentage deduction sound refreshingly simple? If only the rest of the IRS tax codes were that way. In fact, your car lease deduction isn’t even that simple. You already understand how the IRS will break down your deduction in relation to your monthly payment. However, you may have been required to put down an initial payment for your car. You do get a deduction for this amount, but it functions differently. For any down payments and related lump sums, you must spread the deduction over the life of the vehicle. As of 2009, if your car exceeds $18,500 in cost, you may be subject to a cap as far as how much of your lease you can claim as a business expense.
Truthfully, the car lease tax deduction will take some careful preparation on your part, but the significant deduction is worth it to many taxpayers, especially if most of the miles you put on the car are directly related to work ventures. Mostly, you’ll really need to stay on top of your miles log so you can prove how often you use your car as well as what you use it for. If you plan on pursuing a car lease tax deduction, you should seriously consider working with a financial professional in order to get the most of the deduction. The tax codes for this area can get a little complicated, and you don’t want to over claim on your tax returns.
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