The cost of operating and maintaining a car used for business purposes, including depreciation, is deductible. If you own a business, the firm can provide cars for the entire family. As long as they are employee who use the cars exclusively for business purposes, the company can deduct the entire cost of operating them. If a client or his family member (student) uses the car for both personal and business use, the value of the personal use is taxed to the user (unless the personal use is negligible). Even though the value of the personal use of the car is taxed to the student it will be at a lower rate and the American Opportunity or Lifetime Learning tax credit will offset the tax liability.
Specific Details
Dad owns a construction business and hires his son to help him pour cement in the summer. Dad deducted the vehicle expenses of his sons car as a company vehicle. The son had to report the personal portion of the car reimbursement, but he paid no tax on the income because of his standard deduction. Since Dad is in a combined 34% tax bracket (28% Federal and 6% State), Dads tax savings are $1,785 per year.
Potential Savings
If you are in a combined (federal and state) tax bracket of 35%, you could reduce your taxes up to $350 for every $1,000 of car expenses you could deduct.