Car Expenses – What Can You Deduct on Your Taxes?
Anyone who has ever owned a car knows that staying mobile comes with high costs. Regardless of the purchase price, ongoing costs represent a significant financial burden for drivers. Taxes, insurance, repairs, parking fees, and gas must be paid to keep the vehicle on the road. Depending on the model and mileage, these costs can add up to a significant amount annually. One might normally assume that a car is classified by the tax office as a “leisure activity” and therefore cannot be claimed as a deduction. In practice, there are situations where you can deduct car-related expenses for tax purposes, thereby reducing your overall tax liability. As tax advisors in Düsseldorf and Oberhausen, we have summarized the most important aspects.
Personal Car and Taxes
When it comes to determining which expenses are tax-relevant, the tax office primarily looks at the connection to income. Do the expenses have anything to do with income? If this question can be answered with a yes, a tax-related connection can be assumed. If, on the other hand, something is private, the tax authorities see no relevance for the tax return. If a car is used exclusively for private purposes, no tax benefits can be realized. The purchase and maintenance of the car are voluntary and therefore not deductible. All costs must therefore be borne solely by the owner and cannot be claimed on the tax return.
What happens if the car is used for business purposes?
There are very few car owners who can truly establish no connection whatsoever between their own car and their income. Keywords: commute and business trips. If a private vehicle is used to drive to work or to go on a business trip, a connection to income exists. As a private individual, however, none of the expenses can still be claimed directly. Instead, taxes are saved through the commuter allowance, which indirectly reduces the costs of the car.
Deducting a company car for tax purposes
Only self-employed individuals and business owners can deduct a significant portion of vehicle costs if the car is used exclusively for business travel as a company vehicle. It is irrelevant whether you drive the car yourself or an employee uses it for the company. However, a full deduction of the costs is only possible if the vehicle is actually used 100% for business purposes. If you also wish to use the car for personal purposes, the respective personal and business portions must be calculated using a logbook.
Which vehicle expenses are tax-deductible?
Unfortunately, employees cannot deduct all costs associated with a car. It does not matter whether the vehicle was used exclusively for business trips. Below, we will explain which everyday expense categories can be reported on your tax return. As explained earlier, you must determine which of the listed categories apply to your situation.
- Automobile Liability Insurance
You can claim car liability insurance on your tax return. However, please note that only liability insurance may be claimed. If, for example, you have partial or comprehensive coverage, these must be excluded from the calculation. The costs of liability insurance are reported as special expenses.
- Commuter Allowance
A commuter allowance can be claimed on your tax return for your commute to work. For all actual workdays, 30 cents per kilometer of the commute can be claimed (35 cents starting from the 21st kilometer, or even 38 cents between 2022 and 2026). However, only the fastest route counts here. So you can’t take a long detour to try to outsmart the tax authorities. The commuter allowance is intended to cover a portion of the expenses for insurance, repairs, and vehicle tax. A maximum amount of 4,500 euros per year applies.
- Accident Costs
Few people know that accident costs can be partially deducted from taxes. Of course, no one wants to be in an accident. However, if it does happen and no insurance covers it, expenses for towing services, attorney or court fees, and follow-up costs resulting from the accident can be claimed on your taxes. For the costs to be recognized by the tax office, the accident must have occurred on the way to work and the costs must be borne by you.
Any questions? A tax advisor can help!
In practice, the costs of a car can never be fully deducted from taxes. However, there are various ways to reduce the tax burden somewhat. You don’t necessarily have to be a business owner. Even as an employee, you can claim travel expenses.
Do you have any questions about tax matters? We regularly publish new content on our blog. However, for comprehensive advice and an optimal tax return, you should not rely solely on online sources but instead consult a qualified tax advisor. With our offices in Düsseldorf and Oberhausen, we can offer you excellent service in the areas of tax consulting and auditing. Our team looks forward to hearing from you. Contact us to schedule an appointment.
