Hey, the Business Uses My Car Too!
Many
small business owners use vehicles registered in
their own names for business purposes. In most
cases, doing so is actually better from a tax
perspective than having a car in the company's name
and using it personally part of the time.
If
you use your own vehicle in the business, you need
to make sure the business pays its fair share of the
costs. The calculation is similar to the home office
expense but it is based on miles driven. There are
two common ways of calculating business vehicle
usage. Both are described below. Your ability to use
one or the other depends on the tax rules in your
jurisdiction. (You know the drill: talk to your
accountant.)
Business mileage
Both
methods require that you track the number of miles
(or kilometers) you drove for business purposes in
the year. The easiest way to do this is to keep a
mileage log in your glove box. Whenever you are on
business, jot down the date, where you're going, and
how many miles you covered. If you do a regular bank
run or something similarly repetitive, it is
sufficient to track the miles on that trip once and
use that standard number for each trip to the same
place.
Not
only will a mileage log help you calculate your
business vehicle expenses, it also provides you
with back up if you are audited. It's one way to
prove that you actually drove all of those miles
for business.
One
thing to note here is that in most tax
jurisdictions, the daily trip from your home to
your office (assuming you do not have a home
office) is considered personal mileage, not
business mileage. (Go figure!) You would
therefore not include this amount in your
business calculation.
Method 1
This
is the simpler of the two methods. Let's assume
that you drove 5,000 miles for business purposes
in a year. You would multiply this figure by the
permile rate allowed by the IRS. (These rates
change frequently, so check with the IRS for the
current rate.) For example, if the rate was .67
per mile, your vehicle expense would therefore
be
Canadian
readers will have to check with CCRA for the current
per-kilometer rate. Let's say that it's .39, and you
drove 7,000 kilometers per year for business
purposes. Your calculation would be
7000 X .39
= $2,730.
Accounting for Business
Mileage - Method 1