Can You Write Off a Side by Side for Business?

When considering whether you can deduct the cost of a side-by-side vehicle for business purposes, it is important to understand the specific rules set by the Internal Revenue Service (IRS). The ability to claim such a deduction hinges entirely on how the vehicle is used and whether that use aligns with legitimate business operations. Tax write-offs for vehicles are permissible, but they are not automatic.

The IRS requires that any expense claimed must be both “ordinary and necessary” for your trade or business. An ordinary expense is one that is common and accepted in your industry, while a necessary expense is one that is helpful and appropriate for your business. Successfully deducting a side-by-side involves demonstrating its direct connection to your income-generating activities and meticulously following IRS guidelines for documentation.

Determining Eligibility for Business Use

Deducting a side-by-side requires its use for business purposes. The IRS permits deductions for vehicles used in a trade or business, but only the portion attributable to business activities is deductible.

Business use includes travel between different work locations, visiting customers or clients, or performing business tasks like picking up supplies. For example, a side-by-side used on a farm for crop inspection or livestock management, or by a construction company to transport tools and materials on a job site, would qualify. A property manager using it to traverse large properties for maintenance checks could also establish business use.

Commuting between your home and a regular place of business is never deductible business use, even if you perform business tasks during the commute. However, if your home is your principal place of business, travel from your home office to other business destinations can be deductible. The vehicle must be used more than 50% for business to qualify for certain accelerated depreciation methods and the Section 179 deduction.

Understanding Deductible Expenses

Once business use of a side-by-side is established, various expenses can be deducted, including depreciation. Depreciation accounts for the wear and tear and obsolescence of the asset over time, allowing businesses to recover the cost of certain property over its useful life.

Section 179 expensing allows businesses to deduct the full purchase price of qualifying equipment, including vehicles, in the year they are placed in service. For tax years beginning in 2024, the maximum Section 179 expense deduction is $1,220,000, and this deduction begins to phase out if the total cost of Section 179 property placed in service exceeds $3,050,000. Bonus depreciation allows businesses to deduct an additional percentage of the cost of eligible property in the first year. For property placed in service in 2024, the bonus depreciation rate is 60%.

The Modified Accelerated Cost Recovery System (MACRS) is the standard depreciation method for tangible property like vehicles. Under MACRS, assets are assigned a specific recovery period, 5 years for automobiles and light and heavy-duty general purpose trucks, and 7 years for other property. This system allows for larger deductions in earlier years of the asset’s life.

Beyond the initial purchase cost, ongoing operating expenses are also deductible. These include fuel, oil, routine maintenance, repairs, tires, insurance premiums, and registration fees.

When deducting vehicle expenses, businesses choose between the standard mileage rate or actual expenses. The standard mileage rate, which is 67 cents per mile for 2024, is not applicable to specialized vehicles like side-by-sides because they do not have a standard mileage rate. Therefore, for side-by-sides, the actual expense method, which involves tracking all specific costs, is the more appropriate method.

Calculating and Reporting Deductions

Calculating and reporting deductions for a side-by-side involves applying the business-use percentage to depreciation and operating expenses. If the side-by-side is used more than 50% for business, you can elect Section 179 expensing or bonus depreciation in the year it is placed in service. For example, if a side-by-side costing $20,000 is used 75% for business, the depreciable basis for business use would be $15,000.

After applying any Section 179 or bonus depreciation, the remaining basis is depreciated using MACRS. For a side-by-side, the recovery period is 5 years, often using the 200% declining balance method and the half-year convention. The half-year convention assumes the property was placed in service in the middle of the year, allowing for a half-year’s depreciation in the first and last year of the recovery period. For example, a $15,000 business basis for a 5-year property would have a first-year depreciation rate of 20% (half of the 40% declining balance rate for a 5-year asset), resulting in a $3,000 deduction.

Deductions are reported on IRS Form 4562, Depreciation and Amortization. This form is required if you are claiming depreciation for property placed in service during the tax year, taking a Section 179 expense deduction, or depreciating any vehicle or listed property. On Form 4562, you will list the side-by-side, its date placed in service, and the percentage of business use.

Part V of Form 4562 addresses listed property, which includes vehicles. Here, you will enter details like the vehicle’s cost, the business-use percentage, and the calculated depreciation amount. This section also requires information on total mileage, including business and personal miles. The total deductible amount for depreciation and actual operating expenses is then carried to the appropriate income tax form, such as Schedule C (Form 1040) for sole proprietors, or Form 1120 for corporations.

Essential Record Keeping

Maintaining meticulous records is essential to substantiating claimed deductions for a side-by-side, especially with mixed business and personal use. The IRS requires detailed documentation to prove the percentage of business use and the legitimacy of all expenses. These records are essential in case of an IRS audit.

Records to keep include comprehensive mileage logs. These logs should distinguish between business and personal miles, noting the date, destination, purpose of the trip, and mileage for each business use. Accurate mileage records are fundamental for justifying the business-use percentage applied to expenses and depreciation.

Beyond mileage, retain all receipts for expenses related to the side-by-side. This includes receipts for fuel, oil changes, maintenance, and repairs. Keep documentation for tires, insurance premiums, and registration or licensing fees.

The original purchase invoice or bill of sale for the side-by-side is another document. This record establishes the basis of the asset for depreciation. Other relevant documentation, such as loan agreements or lease contracts, should also be kept.

Practical methods for record keeping include manual logs, such as a notebook or dedicated mileage logbook. Mobile applications and software programs can also track mileage using GPS and help categorize expenses. Consistency and accuracy in record keeping are vital for demonstrating compliance with tax regulations.