What can a dentist legally deduct for auto expenses?
Like all deductions; it depends.
The first question you should ask yourself is: How often will the vehicle be used for business purposes?
You can estimate a percentage for the year as a planning tool, but the way this is tracked is by the number of miles driven in the year. For example, let’s say you put 20,000 miles on your vehicle last year. 15,000 miles were business, 2,500 miles were personal, and 2,500 miles were commuting from your home to work. That means the vehicle was used 75% of the time for business (15,000 / 20,000). Commuting is specifically not allowed as a business deduction. Business use generally means travel between two business destinations, one of which may include your regular place of business.
Some examples of qualified business use (both to and from):
- Travel to suppliers
- Going to study club meetings
- Going to purchase office supplies
- Trips to the bank for deposits
- Travel to CE
- Travel to business meetings/lunches
Here’s an important distinction: If you have a qualified home office as your place of business you may be able to deduct the cost of travel from your home office to a different work location, such as the practice location. For example, if you own the stock of an S-Corp and have a qualified home office you could deduct the cost of driving from your home office to your practice.
This isn’t always an easy process, so if your commute is less than 15 miles round trip, it may not be worth it. Contact your CPA to see if you qualify and if it’s worth pursuing.
If you want to speak with someone who knows dental practices, sign up for a consultation and get advice from the team at Tooth & Coin.
If you’re going for it, remember, documentation is key. If you’re ever audited, you may be required to submit a mileage log, or something similar, that may need to include at a maximum (depending on your agent):
- Date of travel
- Location of the business vehicle at the start of the trip
- Odometer reading of the business vehicle at the start of the trip
- Location of the business vehicle at the end of the trip
- Odometer reading of the business vehicle at the end of the trip
- Business purpose of travel
There are now apps that use GPS to help you keep up with this information. I use Expensify, but that is just one of many options. Check out this resource for a list of top apps & best practices for tracking business expenses.
If you’re old school and like to write things down, you can use a mileage book to keep your records. This one from Amazon is all you need to stay on top of your miles.
Note: I have seen auditors that will accept a shorter period of time than a full year. For example, they will take a month’s log, multiply it by twelve, and if it is close to what you’ve reported as business usage, they’ll accept it. If you keep a business calendar, you can also estimate the trips based on your calendar’s events without the mileage information.
Now that you know how to calculate your percentage business usage, it’s time to move on to what expenses qualify. This area only applies if you are using the Actual Cost Method. If you plan on using the Standard Mileage Rate Method, you may skip ahead to that section.
The following automobile expenses typically qualify for deduction:
- Repairs and Maintenance (including car washes)
- Purchase Price (through depreciation)
- Property Taxes
- Tag Renewals and Licenses
- Interest on any automobile loans
You would simply take the sum of these expenses and multiply it by the business use percentage. The remaining amount (25% from our example) would not be deductible. If you will be using the Actual Costs Method, you should be putting all of these expenses onto a business credit card or run through a business account to make sure the expenses are captured by your CPA/accountant. If the expenses are not paid through a business account, you will need to remember to send documentation to your CPA so that you don’t miss out on the expenses and related deductions.