There are multiple instances when you might need to use a personal vehicle for work or commercial activities.
Some instances are easy to note, others not so much. For instance, when you work for a delivery company and your employer asks you to drop a package on your way home, you'll clearly be using your car for a commercial purpose.
What about making a phone call to a client while commuting to or from work in your personal car? Not many people will realize that this activity constitutes using a personal vehicle for work, but it indeed is.
But did you know using personal vehicles for work has tax benefits, as well as potential financial consequences? In this article, we're looking at both sides of the coin.
The Tax Benefits of Using Personal Vehicles for Work
A personal car makes your life easier by several miles, right?
If you're an employee, you no longer have to worry about taking the subway or hailing a taxi. Sure, ride-hailing services like uber have made transportation even easier, but that can't be compared to the comfort and convenience of getting around in your own vehicle. It's even more cost-effective.
If you're a business owner, there is no reason you shouldn't use your car for personal and commercial activities. Actually, it's inevitable, because your personal and professional lives are usually entangled. And it wouldn't make common and economic sense to own two vehicles; one for business and the other for personal activities.
The Internal Revenue Service knows this only too well. It allows vehicle owners to make tax deductions for business driving.
Here is a list of deductions you can make:
- Parking fees
- Car insurance
- Vehicle registration fees
- Maintenance (like oiling) and repairs
- Interest paid on vehicle loans
- Garage rent
- Cost of leasing (when you rent a vehicle instead of buying).
It's important to understand that tax regulations are complex. If you are a novice in tax matters, it's easy to incur expenses that don't qualify as deductibles.
For example, using your personal vehicle as a taxi cab should mean you're using it for business, right? Practically, yes. Under the tax code, however, it doesn't make count as business use, and as such doesn't attract any tax deductions.
Making the Most of Tax Deductions
The IRS relies on your documentation of business activities to approve your deduction claims.
To make the most of these tax benefits, it's vital to keep an accurate log when using a personal vehicle for commercial activities.
For every trip you make, note down the following details:
- Date of trip, including time of departure and arrival
- Purpose of the trip
- Distance covered - It's best to recovered odometer readings than just stating the distance alone
- Maintain the receipts of other relevant expenses incurred along the way, such as gas and tire repairs.
When tax season rolls around, cumulate all the expenses and include them in your tax filings.
This looks like a lot of work to do. It is, especially when your business is a one-man show or you have no assistant. The good news is there are vehicle logbooks you can use to make record keeping easier.
The Cost of Using Personal Vehicles for Work
While the IRS offers incentives to use personal vehicles for business, the same can't be said of insurance companies.
To explore this in detail, we need to look at it from the perspective of employers and employees.
The Risk Employees Incur
As an employee, and depending on the nature of your job, you can find yourself knowingly or unknowingly using your personal vehicle for work.
Some employee might not mind this, especially when the employer compensates them for the task. For instance, if your employer fuels your personal car and asks you to drive to a certain destination and meet a client and offers you field allowance, would you say no?
Say yes and you're putting yourself at a great disadvantage.
Let's say you get into an accident. Your car is damaged extensively, and you have a few fractured ribs.
You decide not to worry about your car. It's insured after all. As for your ribs, worker's compensation will take care of the medical costs.
Oh, how mistaken!
If your car insurer figures out that you were on a business mission (and they do figure out most of the time), your compensation claim will be rejected. Your car is only insured for personal use.
Your employer's workers' compensation insurance provider might also reject compensation claims. You got injured on the job, yes, but while driving a personal car. What if the personal car wasn't properly serviced and such prone to an accident?
The Risk an Employer Incurs
As an employer, driving a personal vehicle for work exposes you to the same risks an employee faces, and more.
Besides the insurer of the personal vehicle refusing to pay up for the damages, they can sue you for subrogation. If the suit is successful, you'll be liable for the damages.
If an employee is hurt and needs to take leave, your business will be a man short, meaning reduced labor output. If you have to hire a temporary worker, that's an unnecessary cost.
The good news is there are steps you can take to mitigate these risks.
First, do the right thing. Ensure neither you nor your employees use personal vehicles for work. Second, and if using personal vehicles is beneficial to your business, purchase a business car insurance policy for each vehicle.
Actually, you might not even need to purchase separate policies. Your current insurer might be willing to adjust the terms of your policy and increase premiums accordingly.
Driving Personal Cars for Business Use: Proceed with Caution
Just like you can use your home for business, you can also use your personal vehicles for business. Doing so, however, has its benefits and risks.
Whether you're an employee or an employer, getting adequate commercial car insurance for your personal vehicle is paramount. Either that or don't drive a personal vehicle to run errands for your business.
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