The ultimate guide to car tax relief
Cars make for some of the most expensive items we can own. Depending on the car, both the initial investment and ongoing maintenance can cost tens of thousands of dollars (even hundreds, in some cases). Luckily, you have several ways to deal with these expenses in the form of car tax relief. Depending on your situation, you may qualify for personal, small business, or self-employed tax deductions. Your best option would be to seek the advice and services of professional tax relief advocates. In this article, Consumer Opinion Guide looks at the notion of car tax relief and all the basics that you need to understand about it.
What is Tax Relief?
To put it simply, tax relief is any program or policy initiative designed by the government to reduce the amount of taxes that businesses and individuals need to pay. It is most commonly found in the forms of universal tax cuts and targeted programs that benefit a specific group of taxpayers or further one of the government’s goals.
5 options for car tax relief
The IRS allows some of the car expenses that are used for qualified business purposes to be written off in the form of tax deductions. You can also get a tax deduction by making charitable contributions, adding vehicles to the company’s fleet, or even logging miles traveled due to business. Here are the five most commonly-used ways to get a tax deduction on your vehicle:
- Contributions to charity
- Purchasing an electric or Hybrid vehicle
- Deduction of business costs
- Deductions for a small business fleet
- Unreimbursed business costs
If you find that your old car is not going to last you much longer, and the associated repair cost is simply not worth the investment, what you can do is donate the vehicle to charity. Of course, this decision hinges on the price you can get by selling your car. The benefit of donating to charity, however, is the fact that you will not have to deal with any hassle that comes with potential buyers, haggling, etc. If your car is simply not worth all that much, donating it to one of the charity organizations will provide you with a tax deduction for the market value the car still possesses.
As an added benefit, most charity organizations will arrange a pickup of the car at their own expense. This particular form of car tax relief applies to both business and personal applications, provided that you get an official receipt from the charity you’re donating it to. The receipt needs to include the value of the donated vehicle and will form the basis for the tax deduction.
Another great way to get car tax relief is if you invest in an electric or hybrid vehicle. Any plug-in electric drive vehicles that you acquire after 31st December 2009 are eligible for a tax credit deduction. In some cases, this credit can be as much as $7,500. However, to get electric and hybrid cars tax relief, your car also needs to fall under the “qualified electric vehicle” category.
What exactly is a “Qualified Electric Vehicle”?
This term refers to a plug-in electric passenger vehicle or a light truck that allows the acquisition of a non-refundable tax credit after its purchase. The requirements to qualify are that the vehicle must be designed to use in public, have at least four wheels, and that it is not used for any commercial purposes. Electric car corporation tax relief is covered in other car tax relief options.
Furthermore, the car’s primary source of power must be an electric motor that charges itself from rechargeable batteries or fuel cells. Lastly, the vehicle itself must be driven in the U.S., with a few exceptions.
If you happen to purchase a qualifying vehicle, you will be able to apply and claim a nonrefundable tax credit and lower the purchase price. You can learn more about this credit in Section 30D of the IRC (Internal Revenue Code). This credit is also sometimes extended as electric car tax relief for self-employed, provided they do not use the vehicle for commercial purposes.
To receive the credit, you must be the original buyer, as the credit is not available for resale purposes. What you can do, however, is lease the car and the credit will still apply. Car lease tax relief might not be as high as when you purchase a vehicle, but it can still be quite significant. As for electric car corporation tax relief, it is usually quite significant and offers a strong incentive for a fleet of electric vehicles.
There are three parts that you need to fill out on Form 8936 to be able to get this credit. The first part will calculate the tentative credit amount while the other two are there to allocate the credit between the personal use of the vehicle and an individual’s business. The full possible credit amount is $7,500, but it is lower than that in most cases.
For example, a hybrid car owner applying for hybrid cars tax relief will get a $2,500 credit from the “get-go”, which can be increased by another $417 if the car’s battery provides five-kilowatt hours of capacity or more. The owner can get an additional deduction of $417 for every kilowatt-hour of battery life above the 5KWh threshold. Up to $7,500, of course.
Business use deduction
If you happen to be a freelancer or if you have your own business, you can get car tax relief in form of a tax deduction for business use. Do note that the business vehicle can also be your personal vehicle. This is, by far, the best method to use if you work under a sole proprietorship rather than under a corporation. The most important part is to separate personal use from business use.
You can even combine electric car tax relief for self-employed with business use, but the paperwork gets a bit tricky. You may want to talk to a specialist to figure out what your options are. In any case, you will need to carefully track your mileage and receipts between business and personal use. The former is not tax-deductible but the latter is.
Deductions for a small business fleet
And if you are running a small business, any vehicle that you exclusively use for business purposes can contribute to yearly tax deductions. You will need to file these deductions as operating expenses. Do note that overhauling a business vehicle does not qualify for a tax deduction. But you can definitely deduct the cost of repairs. Make sure that you keep clear repair records, though. Estimates never go well with the IRS.
Unreimbursed business costs
Lastly, if you are looking for company tax relief on electric cars, you might be eligible for one if you use your own vehicle for business purposes. If the company does not provide reimbursement for your vehicle expenses, you can get one in form of car tax relief. You calculate these expenses by tracking your fuel and maintenance costs. The IRS uses “per-mile” costs, which it updates on a regular basis. The most important thing is that you keep clean records for both personal and business use.
Seek out the help of professionals
When it comes to matters as complex and sensitive as car tax relief, it is best to turn to those that possess the knowledge and experience to solve your problems for you. Consumer Opinion Guide understands just how important it is to find the right consultants, which is why our team devotes so much time and resources to finding only those companies best suited to assist the modern-day consumer. For more insights into the world of tax relief or other industries, make sure to read our other articles!