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Using Your Personal Vehicle for Work

These days, people all across the country are trying to whatever they can to save money in every possible area. The use of vehicles for work purposes is no exception. Business owners, employees and independent contractors alike all are interested in maximizing their savings while getting the most vehicle use for the smallest amount of money possible. Many small business owners in particular often prefer to use personal vehicles for work purposes, since their companies are often financially unable to support the cost of a vehicle and its associated insurance cost.

You may be able to save money on your automotive costs by using a personal vehicle for business purposes, but there are some important considerations to keep in mind before you make the decision to devote your car or truck to business use. Insurance requirements, tax laws and other considerations must be dealt with properly, so that you do not get yourself in trouble in the process of trying to save yourself a little money on your business operating costs. Anyone considering using their personal cars for business should take the time to work through these considerations. With the right information in front of you, you can make an informed decision with confidence.

Auto Insurance and Personal Vehicle Usage for Business

The first and probably most important thing any individual considering using a personal vehicle for business purposes ought to check into is the insurance consequences of such a decision. If you use your vehicle for more than just driving to and from work outside of personal use, you need to check with your auto insurance provider to see whether you might need to carry commercial insurance coverage for your vehicle. It is possible your personal policy may be sufficient, or that simply adding an endorsement for the specific business use you have in mind might be enough. Nevertheless, it would be unwise to assume anything unless you know for sure, especially when it comes to your car insurance.

Many negative outcomes can come about as a result of using your car or truck for business purposes without first looking into your insurance situation. If you are pulled over while working, you could be hit with a substantial citation for improper insurance coverage on your vehicle. If you get in an accident, your insurance provider may refuse to pay on your claim if the accident is work-related and the way you were using the vehicle was found to be excluded by your personal coverage plan. Whether you are a landscaper, a food delivery person, a day care worker or any other type of business owner or employee, it pays to look into the coverage you have and to find out whether it is sufficient to cover the kind of business use you propose. The type of research is simple to do, and it can yield some surprising information that may influence your decision on what kind of policy to buy, or whether to use a personal vehicle for work at all.

Tax Deductions for Vehicle Use

Auto insurance is just one component of the whole financial picture when it comes to making a decision whether or not to use your personal vehicle for business. You also must take into consideration the tax consequences. When you own a car that is only used for business purposes, you can legally deduct all costs associated with owning and operating that car. But if you only use the car for work some of the time, you are limited to a standard mileage deduction. This is true even if you only use the vehicle for personal use on the weekends. The current standard mileage deduction allowed by the IRS is 55 cents per mile [1].

Many employers who require their employees to use their own personal vehicles for work do offer reimbursement by the mile. If you are in a situation where you get paid by the mile for business use of your personal vehicle, you must deduct the amount you are paid from the standard mileage rate allowed by the IRS. It is important to remember this at tax time, and not to create a possible red-flag by essentially double-claiming your mileage.

Other allowable deductions for drivers using their vehicles for business purposes on a part-time basis may include auto loan interest, registration and property tax fees, parking and toll fees. In each of these cases (as with any business deduction), you must be able to provide evidence that the deduction in question stems from a direct cost of working or doing business, and not merely a personal expense. For example, you should be prepared to justify claiming parking fees by proving you were working near the location of the parking structure where you paid the fee on the date in question [1].

Tips to Remember When Using a Personal Car for Work

Whether in relation to your auto insurance policy premium or other expenses associated with owning and operating your automobile, you need to keep detailed records of all your expenses so you are ready to go back and point to them if a question ever arises. For example, if you claim a specific type of work use on your auto insurance plan, and you are able to get an endorsement added without having to go to a commercial policy (which is usually more expensive), you should always be prepared to provide ample proof that the type of work for which you have added an insurance endorsement is, in fact, your professional specialty and the only type of work you engage in.

Keep logs of all miles you drive in your vehicle, whether they are for personal or business use. You might hear it is advisable to keep track of business miles, but it is wise to simply be in the habit of taking down a log entry every time you step into your vehicle so that it becomes a habit. What's more, a complete log showing all your mileage will corroborate the numbers you provide to the IRS if you deduct mileage on your federal taxes. They want to know whether your vehicle is available for personal use, and they ask for a breakdown of personal versus business mileage. Having a complete log gives you everything you need to accurately compute this data come tax time, and it also gives you evidence to back up your claim should an audit ever occur.

By and large, the insurance and tax stipulations surrounding business use of a personal vehicle are analogous to one another. Both must be considered together when you are thinking of using a personal car for work, and both have to be taken into account when you make decisions regarding purchasing new cars as well. From how to title them and insure them to how to claim them on your taxes, all these considerations go hand in hand, and they need to be looked at in totality for you to get a full picture when thinking about using your personal vehicle for work. Do your homework and find out for sure whether the use you have in mind is justified.

[1] http://community2.business.gov/t5/Small-Business-Matters/Using-Your-Personal-Vehicle-for-Business-Purposes-Tax-Deductions/ba-p/5995 Retrieved 2009-12-07.

 

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