A car may be one of the most popular expenses for self-employed person’s economic activity. Get all the essential information to correctly categorize car expenses as business expenditures!
Everything necessary to keep the car running and usable: fuel, repairs, inspections, insurance, parking fees, winter and summer tires, and their replacement. If you acquired the car through any form of leasing, interest payments are also included in business expenses.
However, note that if the car is not in your ownership, to categorize your expenses, such as fuel refills or parking payments, as business-related, you need aa lending agreement of the vehicle with the car owner.
To categorize expenses related to the car as business expenditures, you must choose one of two possible methods. The simplest method is to write off 50% of the expenses. This can be done if trip logs are not maintained, meaning no travel routes are documented. If you believe that the car is used more frequently for business purposes, and the actual expenses are higher, the law allows you to write off up to 70% of the expenses. In this case, you need to create detailed trip logs, specifying how many kilometres you've driven for your business activities, and then calculate the expenses accordingly.
A self-employed uses their personal car for business purposes. In September, the total mileage was 1,000 km, with 900 km used for business activities. The self-employed has documents for fuel purchases and other expenses related to the car's operation. The trip log also provides detailed information on the routes taken for business purposes. Therefore, expenses for business activities can include receipts for fuel purchases necessary for the 700 km mileage, as well as other expenses up to 70%.
Only individual entrepreneurs and farmers that pay the enterprise motor vehicle tax can write off 100% of their car expenses. Other self-employed do not have the option to pay the enterprise motor vehicle tax.
Keep in mind that if a car is specifically purchased with a cost exceeding 50,000 euros (excluding VAT), it is considered an executive class car. Expenses related to the acquisition, maintenance, and all associated costs of such a car cannot be categorized as business-related expenses.
Considering that the cost of a car often exceeds 1,000 euros, it should be classified as fixed assets. In this case, the residual value of the car is not written off as an expense immediately but gradually, by calculating depreciation.
Depreciation of the car is calculated in the following cases:
If you are using financial leasing, the portion that you pay monthly from the cost of fixed asset must be separately included in expenses that are not subject to income tax accrual. However, interest payments on the lease are considered operational expenses, adhering to the above-mentioned principles of expense allocation. But if you acquired the car under operational leasing conditions (rental without a purchase option), there is no need to calculate depreciation - you can fully write off the rental payments as expenses.
If the car requires repairs, new tires, or something similar, this is considered expenses for the routine maintenance of fixed assets, intended to keep the car in working condition. These expenses are written off immediately after payment in accordance with the principles mentioned above.
To calculate the depreciation of fixed assets, you can choose one of two methods: depreciation as a percentage or the period in years of useful life. The chosen method can be changed no more than once every 10 years, and the same method must be applied to all acquired fixed assets. To simplify this task, we recommend using Pats.lv. Based on the data entered in the "Fixed Assets" section, the system will automatically calculate monthly or annual depreciation and create a fixed asset card.
Pamatlīdzekļa iegādi norādi sadaļā “Darījuma apraksts” – “Iegādāts pamatlīdzeklis”. Tad katru mēnesi vai reizi gadā jāuzrāda aprēķinātais nolietojums sadaļā “Darījuma apraksts” – “Pamatlīdzekļa nolietojums”. Taču, ja pamatlīdzeklis iegādāts nomaksā, tad sadaļā “Iegādāts pamatlīdzeklis” jāliek ikmēneša maksājumi (bez procentu maksājumiem). Procentu maksājumus par līzinga pakalpojumu izmantošanu jāpievieno sadaļā “Procenti, bankas komisija”.
You can include the depreciation of the car in your operational expenses. If you use the car for both your business and personal purposes, the depreciation is included in expenses proportionate to the mileage used for business needs, but not exceeding 70%.
For more information on calculating the cost of fixed assets and depreciation, check out our blog.
The more operational expenses you write off, the lower your taxable income will be! For more tips on deducting expenses for your car and other business-related items, check out the help-centre at Pats.lv!.