Daycare Tax Tips

Can I write off a large vehicle as a business expense?

Lots of auto deduction choices

A family child care provider writes:

>If I purchase a large vehicle (suv/van) for child care business transportation, can I write it off as a business expense?

Yes, you can. That's the simple answer. It's more complicated than that, of course.

The amount of your deduction will depend on how many actual business miles you drive versus personal miles. If you use the van only for business driving, then you can deduct 100% of all your expenses. If you also use it for personal driving, that percentage will be lower.

You have the choice of deducting actual costs or using the standard mileage rate. If you use the standard mileage rate, you can also deduct any auto loan interest, DMV personal property taxes, bridge tolls, and parking fees. When deducting actual costs, you need to save all receipts for gas, repairs, insurance, car wash, etc.

If you choose to deduct actual costs, you will deduct the purchase price of the van through depreciation over 5+ years. If you buy a heavy van or SUV (loaded gross vehicle weight over 6,000 lbs.), however, and you plan to drive it consistently more than 50% of the time for business purposes, you can deduct up to $25,000 of the purchase price in the first year using the Section 179 expense deduction. Not if you are already showing a loss on your tax return, though. (Meaning that your business expenses are greater than your income for the year.) There are certain things to consider before taking the Section 179 deduction, but if you think you can use the extra write-off and want it for 2009, you would have to buy the van and start using it for business purposes before the end of the year.

For 2010, you still have a nice "bonus depreciation" option. This special depreciation allowance is more flexible than the Section 179 deduction, because it applies to all vehicles, not just heavy ones and not just those with over 50% business use. But like the Section 179 deduction, bonus depreciation gives you a hefty write-off--up to 50% of the cost of the vehicle in the first year. Bonus depreciation applies only to new vehicles, not used ones.

No matter what, you must keep track of business driving. That doesn't have to mean recording your odometer reading every time you go somewhere, though I recommend you do that from time to time. You can keep other written evidence, such as a calendar showing trips, shopping receipts, bank deposit slips, photos from field trips, etc.

Last updated 4 November 2010

Posted on 2009-12-09 00:35:45