For people operating a small business there are many different deductions available to claim when filing federal income taxes. Car payments on a vehicle that is leased and used by a small business or company are eligible for deduction in full or part when reported properly on tax returns. There are several different IRS forms and pamphlets necessary, in printed form or PDF, to ensure your business taxes are filed correctly, but the actual completion of this task is only moderately difficult.
Locate "Part II, Expenses" on the Schedule C tax form and find line 20a, which is dedicated to vehicles, machinery or equipment that is rented or leased.
Consult page C-6 of the Schedule C instructions publication for your tax year as directed on line 20a of the tax form. The instruction publication states that a vehicle leased for more than 30 days is eligible to have its deduction reduced by the inclusion amount and refers the tax filer to Chapter 4 of Publication 463. A car on a payment plan is leased for more than 30 days, so this consultation with Publication 463 is necessary.
Find the "Leasing a Car" section of Publication 463 and read the information presented. For a car, the IRS refers the reader to Appendix A of Publication 463.
Consult the table in Appendix A to determine the inclusion amount for your leased vehicle. The total fair market value is presented in the far left column with different years representing the beginning of the lease period. Record your inclusion amount, even if it is $0.
Take the inclusion amount and prorate it by dividing the number or days of the year the vehicle is leased by your business by 365. Then multiply the division answer by the inclusion amount from the chart.
Multiply the product of the prorate and the inclusion amount by the percentage of business use the vehicle receives to determine your total inclusion amount. If it is strictly a business vehicle, 100 percent would be the factor.
Take the business portion of your car payment total for the tax year and subtract the inclusion amount from the total. Enter this new total on line 20a as your total reported car payment deduction.
Be sure to have paperwork stored with your tax return copies that supports the business use percentage used to calculate your inclusion amount as outlined in Step 6.
- Be sure to have paperwork stored with your tax return copies that supports the business use percentage used to calculate your inclusion amount as outlined in Step 6.
Ashley Mott has 12 years of small business management experience and a BSBA in accounting from Columbia. She is a full-time government and public safety reporter for Gannett.