Many YouTubers have reached the fortunate position to monetize their video content, either through ads or company sponsorships.
As a result, they have earned a significant gain, with a small number of YouTubers reaching a point where it becomes their full-time income.
However, this also leads them to wonder about their tax obligations. One of the considerations is whether they can write off a car payment as well as what constitutes relevant business use.
Without further ado, we will explore if YouTubers can write off their cars.
Can YouTubers Write Off Their Cars?
Writing off car payments as a business expense is a common practice for many self-employed people.
Usually, this is due to the need to make regular trips which are additional costs to the business.
There are a few different scenarios that determine if YouTubers can write off their cars. Here we will outline them and explain how each scenario affects them.
Financing A Personal Vehicle
This first scenario applies to most people and that is the financing of a personal vehicle.
If you have purchased a personal vehicle that you use for business specific trips using a car loan, you will not be able to completely write off your car payment.
Despite this, you can write off part of the interest on that car loan, since it will constitute a business expense just like gas and maintenance costs.
There are two methods to write off these payments, with one being the usual expense system and the other one being the mileage method. Regardless of which method you decide to use, you will enter the vehicle dedication on schedule C of your tax returns.
To expand on this further, let’s use an example for car loan interest expensing. If you use your vehicle for 70% business use and 30% personal use, you will be able to deduct 70% of your total car loan interest.
This is in addition to costs such as gas, maintenance, insurance, oil changes etc. which are all considered operating costs. With some additional work, you can also deduct the depreciation value of the vehicle.
Since this will require some additional calculation, many independent business owners will choose to employ the mileage method. This groups all of your expenses together, with much less record keeping required.
The standard mileage rate set by the IRS for 2022 is $0.585, but be sure to check this if you are expensing from 2023 onwards. Essentially, you can write off this amount for every mile you drive for business purposes.
Somewhat frustratingly, commuting miles will not count toward this, so travel to and from an office or working space will not be included.
The above is applicable to YouTubers, since it is the method that will apply to freelancers and self employed business owners. There are a range of things that YouTubers could expense but we are focusing on car payments for now.
Financing A Vehicle Through A Business
Financing a vehicle through a business means the small business itself will own the vehicle. This could be done through a dedicated LLC and the car loan is taken in the name of the business and is used entirely for business purposes.
As with the above scenario, you will be able to write off the interest on the car loan. If the car is being used 100% for business use, you will be able to write off 100% of this interest.
This scenario is not likely to be applicable to the vast majority of YouTubers, but there will be some who have established LLCs who could look into it as an option.
In this case, the car payment is not a loan but is a lease. Again you will need to establish what percentage of the vehicle use is for your business before using the actual expense method for the lease payments.
The same example applies, if 70% of the time the vehicle is being used for business purposes, this is the amount that can be seen as deductible.
As a YouTuber, it is likely that the scenario that applies to you will be the first one, with a personal vehicle that has been financed. In this instance, you should keep a good record of your vehicle use for tax purposes.
A small number of YouTubers who have established LLCs may have financed a vehicle through their business. In both situations, the methods are largely similar.