As a contractor, a truck is basically a must. You need a way to haul tools and equipment, and though you could do it with an Impala, a truck is infinitely more practical. However, maintaining several vehicles can be expensive, so you might be considering using just one vehicle for both business and personal use. The good news: there’s nothing illegal about doing this. However, it can get tricky keeping the work expenses separate from the personal. But with some planning, it can be done.
Track Your Mileage
You’ll need to keep track of your business miles. You can track personal miles as well, but for tax purposes, the business mileage is the most important. You can use a mileage log or there are apps you can use, such as Drivemode or MileIQ, to track how much you drive your truck for work. If you don’t want to use an app, you can write down the mileage before you leave for the job site and the mileage on the truck when you return home at the end of the workday. But be careful, if you make personal trips throughout the day, you’ll need to deduct those miles from the business miles. Therefore an app is a good idea because it makes sorting the trips easier.
Check Your Insurance
Commercial insurance is the ideal because it covers your vehicles in the event of accidents on the job site. If you don’t want to use commercial insurance for your personal truck and prefer to use your personal insurance, you can. But consider this:
• If you have an accident in your truck while on the job, your personal insurance might not pay for damages to you or another person’s property.
• If your truck is damaged on a job site, (something falls on it, it’s struck by a piece of heavy equipment, etc.) your personal insurance may not cover the damage.
In other words, using your personal vehicle and your personal insurance while doing business has a decent amount of risk. Worth noting, in some cases, your truck might be cheaper to insure with commercial insurance than with personal. Check with your insurance agency to get some quotes.
Keep Maintenance Records
Keep track of your oil changes, tire purchases or rotations and other maintenance for your truck. Using it for both purposes could increase the frequency maintenance is needed. Since there is no real way to determine whether the maintenance was needed due to business or personal use (unless you get a flat from a nail on a job site or blow a tire hitting a pothole on your way to pick up your kid from little league), you’ll want to keep a record of all the maintenance done on the vehicle.
Choose Your Deduction Method
When it’s tax time, you’ll have some decisions to make. When choosing which type of deduction to take on the truck, you have two options: the IRS Mileage Rate or Actual Cost.
IRS Mileage Rate: You claim the total business miles and multiply that number by the IRS mileage rate. So, if you look at your mileage log or mileage tracker app and determine you drove 24,000 miles for work, you would multiply 24,000 by the IRS mileage rate, which is currently 53.5 cents per mile. This would give you a deduction of $12,840.
Actual Cost: Add up all the expenses you incurred for the vehicle, including depreciation and multiply that amount by the percentage that you used the truck for business. For instance, let’s say you spent $4,000 in upkeep and you are claiming $2,000 in depreciation expense. Your total expenses would be $6,000. And let’s say you use your vehicle for business 50 percent of the time and the other time is personal use. Multiply $6,000 times 50 percent to get a deduction of $3,000.
Please note, you cannot use both methods, it must be one of the other.
Whether you use commercial insurance or decide to track mileage instead of upkeep, using your personal truck for business has its pros and cons. Keep these points in mind as a tool to help you make the best decision.