The New Year is here, which means a new tax season for millions of Americans. While taxes may not be on your radar until closer to the April deadline, now can be the perfect time to begin accounting for all your eligible deductions and scrounging up documentation of your expenses.
To help you pinch some pennies this year for your 2015 tax return, consider these commonly overlooked car-related tax deductions:
Vehicle Loan Interest is NOT Deductible
One important thing to note before getting into the deductions is pointing out one deduction that people mistakenly expect: namely, the interest they paid on their vehicle loan.
Unlike other major loans, such as student loans and home mortgage loans, the interest you pay on your vehicle is not deductible. You are unfortunately going to have to eat that cost, but luckily there are many other deductions you can take advantage of to help make up the difference.
Work-Related Vehicle Use by Mileage
If you happen to use your vehicle for work purposes, you should keep diligent track of the miles you travel and the expenses you incur. Miles spent travelling to and from work do not count, but any travel mileage or vehicle-related expenses you encounter while technically on the clock or on-duty do count towards work-related expense deductions.
One of the simplest ways to receive this deduction is by tracking your vehicle mileage. Make note of any times you have travelled in your vehicle for work purposes other than commuting. Write down your starting and finishing mileage along with specific dates. Documentation like this can make proving your deduction easier should you get audited.
Review IRS publication 463 for a formal list of deductions and amounts. Last year, the deduction amount was 57.5 cents per mile, which may not seem like much but adds up quickly. Employees that are reimbursed for vehicle mileage are not eligible for these deductions though.
Other Work-Related Vehicle Expenses
If you had any other vehicle costs related to work duties, you can deduct those, too. For instance, if you purchased an extra drink holder to help you run food deliveries, that vehicle accessory can be a work expense. If your boss requests that you wash and detail your car before picking up an important client in it, that too can count as a work-related expense. Keep receipts and document dates and reasons for these deductions.
Some drivers may also be able to estimate the portion of vehicle use that goes to work duties and deduct that percentage from their overall expenses. For example, if you use your vehicle for work 20 percent of the time, and you spent $1,000 in regular maintenance throughout 2015, then you could be eligible for a $200 tax deduction.
Other car-related tax deductions include a 14 cent mileage reduction for charity or volunteer work, deductions for relocation more than 50 miles from your original job and more. Contact your local accountant or tax firm to verify eligibility, and make sure you do not miss out on getting money back from all the hard work you put in maintaining your vehicle.
If you are worried about owing money on your tax return, you can consider using Blue Sky’s auto loan refinancing partners to stay on top of your car payments without having to shortchange the IRS.