If you have an electric car for your business and personal needs, you may wonder how to deduct the expenses from your taxes. This is particularly true if you live in a state with a tax credit for electric cars. You can also keep track of your mileage, both for personal and business purposes.
Calculating the Standard Mileage Rate
You can claim a standard mileage rate on your taxes if you want to buy a vehicle for business use. But you have to know precisely what it is.
The IRS standard mileage rate is a formula that you can use to calculate how much money you can deduct from your mileage. It is based on a study of the costs of operating a vehicle.
You can use two main methods to calculate the standard mileage rate. One is the standard mileage rate, and the other is the expense method.
In the standard mileage rate method, you use a chart to multiply your business mileage by the chart’s corresponding amount. You can reduce your car’s tax basis and increase your potential taxable gains.
You can deduct your vehicle’s maintenance, repairs, insurance, gas, registration, and tires for the actual expense method. This can be a more accurate way to determine your business mileage.
If you want to use a method that will be the most beneficial to you, choose the standard mileage rate. However, if you use the actual cost method, you must keep records to prove your expenses.
It would help to consider the IRS’s strict rules when determining whether to use the standard mileage rate or the actual expense method. For example, you can’t claim a deduction for moving expenses, and the IRS doesn’t include parking fees in its list of standard mileage.
While calculating the standard mileage rate, you should also consider your fuel efficiency. If your car is a high-mileage, expensive model, switch to the actual expense method.
However, the actual mileage cost method is one of many methods you can use to deduct your business driving expenses.
Tracking Mileage for Business and Personal Purposes
You can claim mileage for your business expenses if you use your vehicle. It can help reduce your tax bill, but tracking it can be a hassle. A good app can make it easier to track your miles and ensure accurate records.
Depending on your needs, you can choose a mileage tracker that best suits your needs. Several apps on the market are designed to help you keep track of your business and personal miles. Some apps use GPS to capture your data, while others rely on manual inputs.
The IRS requires you to keep accurate mileage logs to claim a mileage deduction for your business. A mileage log should include the following:
- Your start and end locations.
- The number of miles you drive.
- A reason for the trip.
One of the oldest methods for tracking mileage is to write it down in a logbook. While this method works, verifying your solid record can be challenging. Many companies with old-school mileage logging systems have fallen prey to mileage fraud.
Many programs will help you claim a mileage tax deduction and keep track of your financial records.
Other app lets you track your employees’ movements in real time. And the app uses geofencing technology to alert you when an employee has departed from a designated perimeter.
Special Tax Credit for Electric Cars
The federal government has updated its list of qualifying vehicles for the special tax credit for electric cars for business use. This is a change that should make it easier for you to qualify. It’s also expected that the new rules will help reduce the price of electric vehicles.
Currently, EVs can receive up to $7,500 in tax credits. However, several changes in the Inflation Reduction Act can affect your chances of claiming credit.
First, the new rules require that cars be assembled in North America. As a result, automakers will need to find supply chains in North America. They will also have to meet other requirements. For instance, a certain percentage of the minerals used in the batteries must come from countries with free trade agreements with the U.S.
These requirements are expected to significantly impact international automakers like General Motors. GM has shifted its supply chain so it can meet the new needs.
However, the new rules will only take effect after Christmas. Until then, manufacturers can still claim the tax credit for their first 200,000 EVs sold. But once they reach that number, the credit will be phased out.
Next, new rules will increase the number of battery components that must be sourced from the U.S., and a certain percentage of them must be manufactured in the U.S. By 2026, the rate of battery components that must be sourced from North America will increase to 70%. And in 2028, it will rise to 90%.
Finally, the Inflation Reduction Act limits the prices charged for electric vehicles. A vehicle’s sticker price must be at most $80,000. Other cars, such as sport utility vehicles, will be eligible for tax credits if their suggested list price is less than $55,000.
