Business Car Deduction - Some important points

If you have a business that is a separate legal entity from you, the business may not pay your personal expenses and you personally may not pay the business’s expenses. To this extent, the payments made by the business for your personally owned car should be classified a loan to you.
From there, your business is going to reimburse you for business vehicle expenses one of two methods:

• It can reimburse you at the IRS standard mileage rate;  OR
• It can reimburse you for actual expenses

Regardless of the reimbursement method, you need to send proof of the business mileage and all expenses you need to be reimbursed, to your business.

Depreciation expenses for the vehicle may only be deducted by the business if the business owns the title for the vehicle used. You may not deduct depreciation for the vehicle, nor may he deduct fuel, insurance, lease payments or repairs to the vehicle on your personal income tax return, regardless of the percentage the car is used for business purposes.

So, If the business owns the car, it can fully deduct car expenses, subject to dollar limits on depreciation, against its business income. If you, as an employee or shareholder, own the car and use it for business, your expenses are deductible as a miscellaneous itemized deduction to the extent they exceed 2% of your adjusted gross income. And even this deduction may be further limited by the overall reduction in itemized deductions.

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