What Is an Inclusion Amount?

Mary McMahon
Mary McMahon

An inclusion amount is a dollar value that is subtracted from a tax deduction for a car lease. For tax purposes, this is intended to more fairly equalize the tax benefits of deducting expenses associated with leasing versus depreciating a car owned by a business or individual using the vehicle for work. Tax agencies publish tables delineating the inclusion amounts for each given tax year for the benefit of people who need to declare leased cars on their financial statements. It is important to confirm that the table for the right year is used in order to avoid making mistakes.

Man climbing a rope
Man climbing a rope

If a car is leased for business purposes such as transporting tools, meeting clients, or traveling between workplaces, it can be considered a tax-deductible expense. Lease expenses can be added to the deductions used to lower taxable income in order to reduce overall tax owed. The inclusion amount is subtracted from this deduction, effectively behaving like a form of income. Instead of declaring this money as earned, the taxpayer subtracts it from a deduction to bring the taxable income back up.

This amount considers the fair market value of the car, and may be very small for some makes and models. Tables provide detailed information on how to calculate the inclusion amount accurately. It is important to keep documentation relating to the leased vehicle, and to use consistent declarations between tax years for expenses. Several systems can be used to account for some types of business expenses and usually people need to pick one and continue using it for accounting purposes.

Preparing taxes with complex deductions can be confusing. Guides are available from tax agencies to assist people who want to set up their own documentation. It is also possible to hire an accountant to do it. One advantage of working with an accountant can be access to information about tax loopholes and benefits that may not be widely publicized. The accountant is also familiar with activities like checking inclusion amount tables and can help prepare accurate tax documentation to reduce the risk of errors.

If a taxpayer has questions about an inclusion amount or another issue, it may be possible to contact a government representative. It helps to have documentation handy and to clearly formulate the question to avoid confusion. Agents can help people determine how to declare a deduction appropriately so they can receive tax benefits without being accused of misrepresentation. Consulting a representative for information is not a guarantee that taxes won’t be audited, or that errors won’t be found in a review of a tax return.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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