Can I Claim Vehicle Expenses?
Now, you’re getting the INSIDE scoop.
When I meet up with sole proprietorship/partnership clients on Zoom, the MOST COMMON thing I get asked and we discuss is vehicle expenses.
My goal is to help you find expenses you can claim on your tax return to help reduce the amount of tax you have to pay (or even a REFUND!).
This is something you might've not even thought about. If you own or lease a vehicle in your name but use it from time to time to do business trips, then you can claim that business-use-of-vehicle portion onto your T2125 (Statement of Business or Professional Activities).
What is a T2125? I kind of have to go over it really quickly to give you an idea of what it is. As a sole proprietor/partner, when filing your INCOME TAXES, your accountant or tax professional (or yourself on H&R Block) will fill in your business information and numbers into a section called a T2125. It’s really just an extra form to report either business or professional income and expenses.
Now onto the good stuff.
If you use a motor vehicle or passenger vehicle for business and personal use, you can deduct only part of the expenses that you paid to earn income.
A recent client asked me: “Okay, let’s say I filled my gas tank for $50.00 and drove to a client’s house to provide a service. I used the rest of my tank for personal trips. How does this calculation work? Can I claim the entire $50.00 as a business expense?”
To support the amount you can deduct, keep a record of the total kilometres you drive and the kilometres you drive to earn income (logbook).
For Example:
You drove a total of 4,000 km in 2022 (you get this number by writing down your odometer reading at the beginning of the year and end of the year). Your logbook shows you drove 1,000 km for business use. Then the % of your vehicle used to earn an income is 25%.
If you use your vehicle for both business and personal use and end up with a list of expenses similar to this one:
Licence and registration fees – $275
Gas and oil – $2,600
Insurance – $1,000
Interest – $600
Maintenance and repairs – $475
Total expenses $4,950
You can only claim the portion of these expenses that are directly related to business use. If you use the vehicle 25% of the time to earn income, then you can claim:
25% x $4,950 = $1,237.50 in business expenses
Motor vehicle expenses, you may be eligible to claim:
License and registration fees;
Fuel and oil costs;
Insurance;
Interest on money borrowed to buy a motor vehicle;
Maintenance and repairs; and
Leasing costs.
Here's what YOU need to do as a sole proprietorship or partnership business owner:
Keep a mileage logbook to track your business "trips". Quickbooks has a GREAT feature that allows you to easily track your trips with a click of a button. You can also keep a simple clipboard in your vehicle and write it down or track it in a spreadsheet.
Keep the receipts of ALL of your vehicle expenses.
If an accountant, bookkeeper, or tax professional files your income taxes, that's it! They will do the rest!
If you complete your own income taxes through H&R Block or TurboTax, before entering your amount in motor vehicle expenses, complete the calculation in the previous slides. If you'd like a mileage logbook that will provide you with a % of business use, you can find one on my Etsy page!
Happy tracking!
Disclaimer.
