It is not uncommon for small businesses to use their personal vehicle for use in their business. There are, however, certain facts that should be considered regarding car insurance, taxes and the business use of your car.
Commercial Insurance
Auto insurance companies typically have a different rate structure for insuring vehicles put in service for personal use than vehicles in commercial use. If you use your car for business, inform your auto insurer. You'll want to ensure that your policy covers your vehicle when you are using it for both business and personal purposes. In the event an accident occurs while using your car for business, you want to be confident that you are completely covered.
Occasional Business Use
When the business use of your car only occurs occasionally, ask your auto insurer if you need an extension on your personal policy. You may not need a full commercial policy. Explain the circumstances when you use your car for business, such as making an occasional delivery or attending a meeting. Sometimes small business owners put a magnetic sign on their car displaying their business name and phone number. Be advised that if you do this, tell your insurer, as they may consider this to constitute a business vehicle, and you'll need a change in your policy to cover you at all times.
Tax Deductions
The business use of your car can be taken as a tax deduction on your income tax. There are two ways to calculate this deduction. You can take a straight mileage deduction. The Internal Revenue Service gives a deductible cost per mile each year, such as 50 cents per mile. Another way is to total all of your vehicle's annual expenses, including auto insurance, gas, maintenance and repairs, and take a percentage of those expenses as a deduction, based on the percentage of business-to-personal use. This is determined by keeping a record of personal and business miles traveled. For example, if you drove 20,000 miles during the tax year, and 10,000 of that was for business, you can deduct 50 percent of your car insurance, gas and maintenance costs.
Keep Accurate Records
Office supply stores sell small vehicle log booklets that you can keep in your car. These provide a written record of the dates, odometer readings and the purpose for each trip. Supplement this booklet and other expenses with supporting documents, such as a copy your car insurance policy and premium statements and cancelled checks showing you paid your car insurance. Cancelled checks, credit card statements, repair invoices and gas receipts should also be kept.
