How to Write Off Interest on a Car Loan for Your Taxes

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November 9, 2016

Many people write off interest when paying their taxes. You’re already paying a lot of money on your car loan, so why not get some extra money back? Unfortunately, most people cannot take advantage of writing off car payment interest on their taxes. This deduction usually applies only to those who are self-employed or own their own business. It is not for people who work under another employer or people who are on some form of government assistance. And as always, take some caution when you deduct anything from your taxes. If you want to know how to deduct interest on car, read below to find out how.

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Tools and Supplies List

  • Pen
  • Paper

Step 1- Keep Track of Your Mileage

Get a notebook and start to write down how much time you spend using the car for work related purposes. This includes any time spent going to and from business appointments. Keep track of your mileage and how often you use your car.

Step 2 - Tally Up a Year’s Worth of Auto Lease Expenses

You need to calculate the entire expenditures of your car. Multiply your monthly fee by 12 to get the exact dollar amount. If you have had your car for less than 12 months, calculate the expense by multiplying your monthly fee by the number of months you have leased the vehicle or car.

Step 3 - Separate Business Use from Personal Use

If you are using the same car for both business and personal use, calculate the percentage of how much time you use the car for business use. Remember that if you use the car for less than 20% of business related reasons, a deduction might be more trouble than its worth. Deducting the costs of leasing a car is ideal for those who use any vehicle for 50% or more business related reasons. If the said car is used strictly for business, this does not apply, but please check with a tax professional for more information and to make sure you don’t get audited.

Step 4 -Figure out Your Lease Inclusion Cost

If you’ve been leasing a car that costs a lot, then you need to configure the lease conclusion cost. Ask your tax professional how to do this.

Step 5- Add Costs of Gas and Insurance

When writing of the interest of your automobile, it's important to take in to account the extra costs. This includes gas, insurance, and maintenance fees. Keep records of everything you spend and save copies of bills or receipts for proofs of purchase.

Step 6- Make a Tax Preparation Kit

Bring in all your information and papers that pertain to business and auto related expenses. Carry a notebook with your car lease information, car leasing bills, insurance papers, receipts, etc. Be prepared to answer questions about car related and business related usage, so make sure you’ve figured out and deducted the costs ahead of time.

Step 7- When in Doubt, always ask a Tax Professional

If you’re new to deducting business related expenses, or have any questions, please consult a tax professional for advice.

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