Personal and Business Vehicle Tax Claims

personal and business vehicle tax claims

When it comes to the use of company vehicles for business purposes or personal activities, the line can be grey. Who used what, and for what purpose? We’re here to bring clarity to the situation.

UNITED STATES 

There are many businesses that operate vehicle fleets. From service businesses to delivery and everything in between. If you are operating a business in the U.S. and that business uses vehicles (either personal or company owned) for the purpose of producing an income, you can make tax claims.

The U.S. has two sets of rules you can choose to follow for the claiming of deductions. Actual Car Expenses and Standard Mileage Rate. Actual Car Expenses are based off costs associated with ownership. Things such as license and registration fees, fuel, insurance, interest, preventative maintenance, and repairs can all be deducted. All these costs add up and can represent a significant portion of your deductible taxes. Let’s run through a brief example:

Dave owns a Parts Delivery Service business. He has 3 vans that deliver parts to shops all around town. Dave notes that each van drove 40,000 miles that year. 35,000 of those being driven in relation to the business, thus earning an income. Each van was also driven an extra 5,000 that year for personal reasons (presumably for the drivers to get to and from work, etc.).

Here are the expenses incurred by each van for the year:

  • License and Registration Fees: $150
  • Fuel Costs: $3,000
  • Preventative maintenance: $250
  • Insurance: $2,000
  • Interest: $1,000
  • Total Expenses per Van = $6.400

After all the expenses are calculated you simply multiply the ratio of business/personal mileage by the expense amount. It looks like this: 

Business & Personal fleet expensesStandard Mileage Rate

This system is simple, and in many cases, offers a larger deduction. To compensate there are restrictions on who can make this type of claim. To start, the IRS decides a flat rate that can be claimed per mile. The rate for 2017 was $0.535USD, that means for every mile driven (for the purpose of producing a profit) fleet owners can claim $0.535USD.  

To use the Standard Mileage Rate, you must: 

  • Have 5 or fewer vehicles operating at the same time 
  • If you own the vehicle(s), you must choose to use Standard Mileage Rate during the first year of ownership, if you don’t then you cannot use it later. However, if you do choose to use it in the first year you may switch to Actual Car Expenses when it is suitable 
  • If you are leasing the vehicle(s), then you must use the Standard Mileage Rate for the entire duration of the lease.  

It’s important to note that your business is permitted to have five or more vehicles for the purpose of producing a profit, it’s simply that no more than five are allowed to operate at the same time. So why does the U.S. have two options for tax deductions regarding business vehicles? Well for those businesses that have purchased or leased new vehicles, it would be beneficial to choose Standard Mileage Rate over Actual Car expenses, because new vehicles use less fuel, don’t need repairs as often, and overall have fewer upkeep costs when compared to older vehicles. In your own business, calculate the deductions you receive with both methods and decide which one to use based on the size of the claim, in this case, bigger is always better.  

CANADA

In Canada you may claim tax deductions if you use a motor vehicle for business, this is a clear distinction between the United States. In the U.S. the wording to produce a profit alludes to the exclusion of non-profit organizations, whilst in Canada, it does not.

Canada only has one option for tax claims, utilizing a system very similar to Actual Car Expenses except that they do not include depreciation as a claimable expense. Additionally, Canadians may claim parking and supplementary business insurance costs. Because of the similarities, we won’t run you through an example, as the Canadian system functions the same as the American one.  For more information and a workable example click here.  

 

HOW TITAN GPS CAN HELP 

A common thread between the Standard Mileage Rate, Actual Car Expenses, and Canadian methods is a need to calculate how many miles are business related and how many kilometers are for personal reasons. Typically, these things are self-reported by the drivers. As you can imagine, in many cases this system results in less-than-accurate reporting. Luckily Titan GPS has developed a workable, easily implemented and accurate solution, with our Driver ID technology.  

Titan GPS Driver I.D. is a system that pairs drivers to vehicles and other motorized assets using a simple key fob. The typical application for our Driver I.D. system is to identify which driver is operating which asset at any given time, a useful feature for businesses that have fleet assets which are utilized by multiple operators. However, we’ve also developed a Personal Trip-Logging system based off Driver I.D. Drivers will be given two small keyfobs that fit on one keychain, one will be used for personal travel and the other for business travel. Drivers simply tap whichever fob is appropriate before they drive and miles are automatically recorded in the Titan GPS system. Then at the end of the year, during tax season, you’ll be able to be specific on your recorded mileage and submit an accurate claim. Worried that drivers won’t use the fob? The Driver I.D. system will release audible alerts within the cab until a fob is tapped.

REQUEST A QUOTE TODAY

 

Share: