It is a legitimate tax deduction if you make a vehicle purchase for your business. But the meaning of business travel does not mean a generous trip as few business owners would imagine. For example, you cannot claim your expense while you are having leisure time with your company logo on your vehicle.
So, you cannot claim any amount during your commute from home to the office or pleasure driving. However, you can claim the deducted money while you are on your official visits, client meetings, business meetings, and so on.
Keep reading to get more information!
How to Explain Tax Write Off on Vehicle Purchase?
Writing off your tax on vehicle purchases minimizes your payable taxes on company-related purchases. This is a temporary deduction and it is expected to last till June 2021; it was implemented to keep the economy afloat, irrespective of the business size during the COVID-19 pandemic.
This is giving the business owners a free hand to spend $150,000 on taxes, and it also enables the business owners to lower their taxable income to that amount. However, the threshold amount is calculated as per the value of the asset under $150,000. This ensures that you can deduct the purchase of a vehicle from your business.
Assets such as cars, equipment, and tools depreciate with time. However, you can claim a specific percentage of this depreciation cost every year.
Why do you need to Care?
This scheme is introduced to help reduce the impact of coronavirus on the different economies. It ensures the business owners make purchases. It also helps to inject cash into the economy and then writing it off as a business asset.
Earlier, many businesses would whose annual turnover of $50 million failed to take advantage of the Instant Asset Write-Off (IAWO). However, this increase in the tax deduction would help many business owners to take advantage of the scheme easily.
Many business owners do not have any idea about the scheme even today. This is the reason why only $10,000 is claimed till now. Nearly 80% of the small business owners are not fully aware of small business tax details.
Guide for a Tax deduction for Vehicle Purchase
- You need to buy your business vehicle before 30th June 2021 to claim your amount.
- This will offer you the perfect window to buy a vehicle for your business.
- Though you need to pay an up-front cost, you can bring down your taxable income.
- However, taking a short-term interest on the car loan will help not to miss out on your tax deduction on your vehicle purchase.
Is my Business Eligible for Vehicle tax deduction?
During the introduction of this scheme, it was available to business owners whose annual turnover was up to $2 million. However, recently this also included many large enterprises. The advantage of instant tax write-off is made available to the business whose annual turnover is up to $500 million.
Although, you can deduct the cost if you are not using your vehicle solely for business purposes. But you need to remember that it can become a headache when you begin to calculate the costs. You can only deduct the business cost and not the personal cost.