When doing your taxes, you want to get the maximum amount of deductions available. Therefore, you need to consult with an experienced tax preparation service to see how they can help you achieve this goal. One of the many questions people wonder about taxes happens to be is interest on a car loan tax deductible?
When Car Payments Are Tax Deductible
The Internal Revenue Service does not allow you to deduct personal loans on your income taxes, and this includes car loans. However, under certain instances, you might be able to deduct the interest and fees that are charged on an auto loan. Therefore, if you want to know are car payments tax deductible for a business, the answer is yes in certain circumstances. In order to receive deductions for a car loan, the vehicle must be used for your business. The IRS likes you to generate income with your business because you will be paying taxes on your business.
Therefore, anytime you have business expenses, you can usually get a tax deduction. If your vehicle is used only for your business and nothing else, you can deduct the full amount of money that you pay in interest. If your vehicle is used for personal reasons in addition to business reasons, you will need to specify the expenses and mileage you actually use for business reasons. You will need to be able to prove to the Internal Revenue Service that the vehicle is used for business purposes. Make sure you write down the interest rate and number of payments you are making. You also need to make sure you keep all cancelled checks and receipts. You need to be prepared in case the IRS decides to audit you.
Another way that you might be able to receive deductions on car payments is if you obtain a home equity loan and use the money to purchase your vehicle. In order to do this, you need to have enough equity in your home to qualify for this loan. In this case, the interest is deductible if you itemize on your tax return.
How to Write off Vehicle Payments as a Business Expense
You are able to deduct vehicle payments as business expenses; however, there are certain rules that you must follow. It is best if you itemize on your tax return. If you own a business, you can take a depreciation deduction to write down the worth of the vehicle. According to tax laws, you are allowed to use the standard mileage rate or use the actual costs that occurred while using the vehicle for your business. If you take out a loan to pay for the vehicle, only the interest incurred can be deducted. If you lease a vehicle for your business, you can use the lease payments as a write off unless you use the mileage rate.
The bottom line is that you can deduct car loan payments on your taxes as long as certain guidelines are met. Consult with an expert tax preparer to help you determine how you can use vehicle payments as a deduction on your tax return. If you would like to know more about how we can help you get the BIGGEST refund and pay the LEAST amount in taxes, call us for a FREE tax preparation consultation at (855) 829-8477.