If you just bought a brand-new vehicle and you’re wondering, “Can I write that off of my business?” the answer is that it depends because there are a lot of variables to look at.
To start, if you get paid with a W2 and you work at a private practice or DSO, then you can’t deduct the cost of that new car for tax purposes. If you find yourself driving business miles for your employer that’s not part of your typical commute, however, then you should be getting reimbursed. Your employer should do so at the standard mileage rate, and that money should be paid to you tax-free.
So while a regular employee can’t write off a vehicle, a dental practice owner may be able to, especially if you drive your vehicle regularly for work. If you can take the vehicle deduction, then there are two ways to go about it (your CPA can advise what’s best for your specific situation).
The Two Deduction Methods
You can use either the standard mileage method or the actual mileage method to deduct your vehicle. The standard mileage method is where you track the miles you actually drive the vehicle, and then use the standard mileage rates the IRS publishes to calculate your deduction. The actual mileage method is where you keep records of the expenses you actually spend on your vehicle (like for maintenance), plus depreciation.
Purchased New, or Already Owned?
Before you even think about writing off your vehicle, you have to determine whether you’re bringing a vehicle into your business or purchasing a vehicle — because you can actually take a deduction on both! However, there are different ways in determining the basis for depreciation, which are based on if you’re purchasing new or you’ve already had your car in the past.
If you’re purchasing a vehicle, your basis for depreciation is going to be what you purchased the vehicle for, plus any other fees, like sales taxes and other things like that. If you already own a vehicle and you’re bringing it into your business, your basis for depreciation is going to be the current fair market value of that vehicle or your adjusted basis in that vehicle, whichever is less.
We can’t stress this enough: You’ve got to know how much you’re driving the vehicle for personal use versus business use because that’s how you’re going to be able to deduct the costs.
Can You Deduct Your Vehicle? Find Out!
If you actually do drive your vehicle frequently for work, then the next step is to get with your CPA to figure out which method will help you get the most bang for your buck and the biggest deduction you can for your dental practice. Our team specializes in helping dentists build a thriving practice, and uncovering beneficial deductions like this is just one way to do that.
At Duckett Ladd, we know you want to successfully run your practice and achieve your ideal quality of life. Our accounting, tax planning, and business strategy services can help you do it. To find the fastest solution to your business challenges, get in touch with our team today!
Duckett Ladd, LLP does not provide tax, legal, or accounting advice. This content has been prepared for informational purposes only and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Also, tax law is ever-changing and every effort should be made to seek out the most current information. Make sure to check the date of published content to ensure the most current information.