Q. I am starting a freelancing business, can I deduct some of my car expenses to offset the income?
A. You can use one of 3 ways to deduct your car expenses that are related to your business. We will discuss them in details in this blog series.
Method 1. Write Off the Full Cost of a New Car
If you bought a new car for your business, Section 179 deduction allows you to write off the full cost of the new car (certain limits apply).
However, there are many restrictions if you use this method, including one that is called "section 179 recapture" which means if you don't use the car for the next 5 years for business, the expense you previously wrote off will be treated as income in the year you stop using the car for business.
The Bottom Line
If you intend to keep this business for more than 5 years, and if your business does not require you driving a lot, and you happened to bought a new car, it's best to use this method because you could deduct more expenses than the other two methods (see discussions later).
In our next blog post, we will discuss method 2 - The Standard Mileage Rate method.
A. You can use one of 3 ways to deduct your car expenses that are related to your business. We will discuss them in details in this blog series.
Method 1. Write Off the Full Cost of a New Car
If you bought a new car for your business, Section 179 deduction allows you to write off the full cost of the new car (certain limits apply).
However, there are many restrictions if you use this method, including one that is called "section 179 recapture" which means if you don't use the car for the next 5 years for business, the expense you previously wrote off will be treated as income in the year you stop using the car for business.
The Bottom Line
If you intend to keep this business for more than 5 years, and if your business does not require you driving a lot, and you happened to bought a new car, it's best to use this method because you could deduct more expenses than the other two methods (see discussions later).
In our next blog post, we will discuss method 2 - The Standard Mileage Rate method.
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