Claiming Vehicle Expenses - The Actual Expenses Method

When you use your vehicle in your family child care business, you can deduct a portion of the cost of operating it. Because the deductions for vehicle expenses can help significantly reduce your taxes, you want to be sure you are claiming them properly.

There are two ways to claim vehicle expenses: the Standard Mileage Method or the Actual Expenses Method.

The Actual Expenses Method

Using this method allows you to deduct the business portion of all the actual expenses of operating your vehicle. These include: Gas, oil changes, repairs, car insurance, tires, emergency road service, ice scraper, jumper cables, tune-up, car wash/wax, windshield wiper fluid, as well as parking/tolls/ferry, car loan interest, car property tax and so on.

You must save your receipts for all these purchases.

You can also claim depreciation on the vehicle based on its fair market value at the time you first used it in your business.

The business portion is determined by dividing the number of business miles you drove in the year by the total number of miles you drove. For example, 2,000 business miles divided by 10,000 total miles = 20% business. Add up all your actual vehicle expenses (except depreciation) and multiply by your business percentage to claim your deduction. Depreciation is calculated separately.

Which method is better?

Most child care providers use the standard mileage method to claim vehicle expenses because it’s easier to keep records. However, many would be better off using the actual expenses method.

In the first year you use your vehicle for your business, you can choose either method. However, if you choose the Actual Expenses Method you must continue using this method for as long as you use that vehicle in your business. If you choose the Standard Mileage Method in the first year, you can switch to the actual method in later years. If you use more than one vehicle for your business, you can choose one method for one vehicle and another method for the other.

Leasing

If you lease a vehicle, you can choose either method when deducting expenses. If you choose the actual method you can deduct the business portion of the lease, gas, insurance, oil changes, and other out-of-pocket expenses.

In general, leasing will cost you more money over the long run than buying the vehicle.

For a complete discussion of the pros and cons of leasing, see my book Family Child Care Money Management and Retirement Guide. 

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.flickr.com/photos/unevoc/30868835088

For more information on deducting vehicle expenses see my book Family Child Care Record Keeping Guide.