In a recent article on  CPA Practice Advisor, Ken Berry, J.D. discusses the many tax implications a new business vehicle has for the self-employed.

Below is an excerpt from the article.

The new 2022 car and truck models will be in dealership showrooms soon. If you’re in the market for a vehicle for your self-employed business, don’t forget to factor taxes into the equation.

Starting point: Generally, you can claim deductions for vehicle expenses as a self-employed taxpayer, but there are a few twists and turns along the way. Notably, the tax law includes several “speed limits” that can affect your write-offs.

First off, you may deduct vehicle expenses in one of two ways.

1. Actual expense method: This method allows you to deduct your actual expenses based on the percentage of business use. For example, if you use a car 90% for business and drive it 10% personally, you may write off 90% of your qualified expenses, including gas, oil, insurance, repairs, etc. Furthermore, you ‘re in line for depreciation deductions, subject to certain limits (more on this later).

2. Standard mileage rate: Alternatively, you can use the simplified standard mileage rate set annually by the IRS.  For 2021, the standard mileage rate is 56 cents per business mile (down from 57.5 cents in 2020), plus you can add on business-related tolls and parking fees. For example if you drive a vehicle 10,000 business miles and incur $500 in parking fees and tolls this year, your deduction is $6,100 (56 cents x 10,000 + $500).

Regardless of which method you use, keep detailed contemporaneous records as proof in case the IRS challenges your deductions. Notably, you must record each business trip, including the date, location, distance and business purpose. But the record keeping for the actual expense method is even more burdensome because you must account for every deductible expense.

For the full article including a more detailed list of business vehicle tax considerations, click here.