Can You Deduct 100% of Your Car Expenses by Adding a Business Sign on Your Vehicle?
It’s a common question among small business owners: if you add a sign advertising your business on your vehicle, does it qualify you for a full car expense deduction? A recent Tax Court case sheds light on this issue. In this case, a dentist installed a license plate holder with his practice’s name and attempted to deduct 100% of his car expenses. The Tax Court ruled against him, pointing out that simply displaying a business name doesn’t make all car use deductible.
Understanding Deductible Car Expenses
To deduct car expenses, trips must be primarily for business—meaning that more than 50% of the reason for each trip is business-related. Business trips could include activities like transporting supplies, making deposits at the bank, attending training sessions, or grocery trips where the majority of the items are for business purposes.
When it comes to claiming these deductions, you have two main options:
Standard Mileage Rate - Multiply the IRS rate (for 2021, it’s $.56 per mile) by the number of miles you drove for business purposes. This straightforward option is popular among many small business owners.
Actual Expenses Method - Here, you calculate the business portion of all car expenses, including gas, repairs, maintenance, insurance, and depreciation. To determine the business portion, divide the number of business miles by the total miles driven. For example, if you drive 2,000 business miles out of 10,000 total miles, 20% of your car expenses would be deductible.
The Impact of Advertising Signs on Your Deduction
Simply placing a sign on your car doesn’t convert personal trips into business trips. Even with a sign, only trips that are primarily for business are deductible. However, you can deduct the cost of the sign itself as an advertising expense, separate from your car expenses.
In short, while signs on your vehicle may increase your visibility, they don’t increase your deductible mileage. It’s always best to keep clear records of business trips to support any deductions claimed.
