The 2021 tax season is swiftly approaching. As it does, business owners should begin gathering their purchase records to determine what their taxable income for the year is going to be. This is also the perfect time to make additional investments towards the business that can be counted as tax write-offs, reducing tax liability.
What Purchases Qualify as Tax Write-Offs?
Tax write-offs, or tax deductions, work to lower your total taxable income. While owners can write off various purchases as business expenses, not all assets can be used as tax write-offs. For an investment to qualify as a tax deduction, it must be both ordinary and necessary.
What does it mean to be ordinary and necessary? For a business expense to be considered ordinary, it must be common for your industry. Necessary expenses, on the other hand, are those that are deemed helpful and appropriate for a business but don’t have to be indispensable. When an investment meets these two qualifications, purchases can be considered tax write-offs.
After understanding the requirements for a purchase to be tax-deductible, we can now look at the types of expenses that can help you make the most of your tax write-offs this year.
Some of the most valuable tax write-offs are the ones relating to vehicles. Thanks to Section 179, business owners are able to purchase various vehicles for their business and receive a tax write-off within certain conditions. These conditions include:
The type of vehicle and amount of time that the vehicle is used for business-related purposes will play a significant role in the tax deduction and first-year depreciation value that can be claimed. Whether you purchase small or large vehicles, trucks, or passenger vehicles, there are various ways that a new vehicle in your fleet can help you save money every year.
Not only can you receive tax write-offs for purchasing new vehicles, but you can also receive additional benefits from the use of your business vehicles. To claim these benefits, there are again specific criteria to be met, mainly the use must be considered for business. The IRS determines what exactly constitutes business travel and use, but it is often seen in situations such as:
• Driving between multiple worksites.
• Driving from your workplace to meet clients.
• Commuting from home to temporary workplaces or places that aren’t your typical workplace.
Unfortunately, commuting from your home to your standard worksite isn’t deductible.
Two methods can be used to claim tax write-offs for vehicle use, tracking miles or tracking expenses. For both methods, it is essential to maintain the proper documentation for the IRS.
When tracking miles, you’ll need:
• The date of the trip
• Where you went
• How many miles the trip took
• The business purpose of the trip
• The total miles you drove the car during the year
When tracking expenses, you’ll need to track items such as:
• Lease payments
Whichever method you choose, maintaining the proper documentation is essential if the IRS conducts an audit.
Advertising & Promotion
Another way your new vehicles can be used is to spread awareness of your brand. The money that you invest into marketing and advertising is 100% deductible from your taxable income, meaning you can grow your business while saving money in the long run.
Though there are various options to choose from when looking into advertising options, none can compare to vehicle advertising. Vehicle wraps are one of the most effective ways to reach customers and are the most cost-effective marketing channel compared to other methods. Beyond the savings from tax write-offs, a well-designed wrap can help your business make a lasting impression and drive conversions to boost the money in your wallet further.
When looking to wrap your vehicles, go with the experts! Fleet Wrap HQ has over 21 years of experience wrapping vehicles for various industries. With over 15,000 vehicle wraps under our hood, we can guarantee a wrap design that you’ll be proud of and will leave a lasting impression.
Contact us and learn more about how investing in vehicle advertising today can help your business save on tax write-offs this year and continue to grow for the years to come.