Deducting Vehicle Costs On Your Taxes - Who Can Benefit?
It’s no secret, the expenses of owning and driving a vehicle can add up quickly. And we’re not just talking about the cost of gas! Oil changes, brake pads, air filters and new tires, just to name a few, can become costly – especially if you’re not budgeting for it.
All of this wear and tear on your vehicle ultimately requires more servicing, plus your car depreciates in value each year. You may even pay more in car insurance if you’re driving a lot of miles every day.
Fortunately, there is some good news about all this! If you’re self-employed or own your own business, you can usually deduct some or all of these expenses on your tax return if you’re using the vehicle for work. There are basically two options for deducting: either claim the standard mileage rate, or report the actual expenses incurred while carrying out business-related activities.
Do I Qualify for a Vehicle Deduction?
If you use your car in your job or business and you use it only for that purpose, you may deduct its entire cost of operation (subject to limits discussed later). However, if you use the car for both business and personal reasons, you may deduct only the cost of its business use.
Using the Standard Mileage Rate
Each year the Internal Revenue Service (IRS) adjusts the standard mileage rate based on the fluctuating costs of operating a vehicle – including the cost of fuel. Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) is:
58 cents per mile driven for business use, up 3.5 cents from the rate for 2018
20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018
14 cents per mile driven in service of charitable organizations
To use the standard mileage rate, you must own or lease the car and:
You must not operate five or more cars at the same time, as in a fleet operation
You must not have claimed a depreciation deduction for the car using any method other than straight-line
You must not have claimed a Section 179 deduction on the car
You must not have claimed the special depreciation allowance on the car
You must not have claimed actual expenses after 1997 for a car you lease
You can't be a rural mail carrier who received a "qualified reimbursement"
Remember, you can only count business mileage on taxes, not commuting miles. For example, when driving to your regular office, those miles don’t count. But if you drive for business purposes such as visiting a client’s office, temporary work location or industry event, you can count those miles towards the IRS mileage deduction. Just make sure you keep REALLY good records because the government doesn’t particularly like handing out this deduction without something to back it up! There's a number of good cell phone apps which will making tracking the miles of your business driving easy, and we suggest getting and using one of them.
It is important to note that under the Tax Cuts and Jobs Act (TCJA), employees cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station. For more details see Notice-2019-02.
Deducting Actual Expenses
To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that's business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments). Then, if you know the total miles the vehicle was driven that year as well as the business miles driven that year, you can use that data to compute the costs attributable to that portion of the total miles driven which are business miles. Don't worry – it's not as hard as it sounds! Please refer to IRS Publication 463 (2018), Travel, Gift, and Car Expenses for more information about what expenses you can deduct using this method.
Note: Other car expenses for parking fees and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses.
If you have questions about deducting vehicle expenses or need help calculating your mileage deduction, please CONTACT US right away. We're here to help!