A common question we receive at E. Daniel Miller, CPA, PC pertains to how business car expenses are handled. And 
it’s true you’re allowed a tax deduction for your car expenses when it is used in the ordinary course of your business. Now this doesn’t apply to the use of your car in the course of your work as an employee; employees must follow a different set of rules (there’s no lack of rules with the IRS, right?). The expense deductions discussed here are if you’re self-employed, a partner in a partnership, or if you have your own LLC or corporation (some of these are handled just a tad bit differently, but we mention them lest someone think there’s no expense deduction benefit–please contact us for more specific info–[email protected]).
Automobile Defined
For purposes of the tax deduction, an auto is typically defined as any four-wheeled vehicle (including truck or van) made primarily for use on public streets. Its unloaded weight must be 6,000 pounds or less. It does NOT include autos such as ambulances, hearses, autos used for transporting people or property, or trucks or vans qualified as non-personal use autos. This doesn’t mean there are not expense deductions for these latter mentioned autos, so please contact E. Daniel Miller, CPA, PC with your specifics at (888) 734-3933 or [email protected] if you have one of these automobiles.
Two Methods of Deduction
The IRS allows taxpayers to use one of two methods of deducting automobile expenses.
You may use the “Actual” method, which simply means you can deduct your actual auto expenses pertaining to business. These expenses include:
- Gas
- Oil
- Insurance
- Repairs
- Tires
- Registration fees, Licenses
- Property taxes
- Lease payments
- Interest on financing
- Depreciation
See important information below pertaining to business portion.
You may alternately use the “Standard Mileage Deduction“. This method simply applies a standard mileage rate to the number of business miles. The standard mileage rate is determined by the IRS and is meant to account for the actual expenses of a vehicle (see above) all in one rate. The rate changes from year to year–and sometimes more than once per year. These are the standard mileage rates for the following years:
- 2015 .575 cents per mile
- 2014 .56 cents per mile
- 2013 .565 cents per mile
Which Deduction Should You Use?
As usual, this depends. You’re allowed to take whichever of these yields the highest deduction benefit, AND you can even switch from year to year; however, if you do switch from year to year, you MUST have used the Standard Mileage Deduction in the FIRST year (for the particular auto–not for all future autos).
E. Daniel Miller, CPA, PC typically sees the standard mileage rate offering the most benefit. But you truly have to calculate the deduction both ways. Most people feel their actual expenses will outweigh the standard mileage rate–and you can’t blame them–because they’re remembering the huge costs of the gasoline they purchased, the transmission repairs, the new tires they purchased, etc. However, remember it’s only the business portion that can be deducted–so you’re not really deducting 100% of your costs.
The Business Portion Only
The standard mileage rate is easy (in calculation, but tracking is a little annoying) as you multiply the IRS rate by only the business miles you’ve driven (not personal miles).
The actual expenses are a little trickier because you have to multiply the total actual cost by the business percentage used. For example, if you used your car 10% for business, then you can only deduct 10% of the total cost. This can typically “whittle down” the amount of the actual expense for a lot of people.
How to Figure the Business Portion
Unfortunately there’s no escaping tracking your mileage, regardless of what method you use, because it’s the percentage of business miles to total miles that determines the percentage of business expenses you can deduct.
To track your expenses, you can either use the “old fashioned” method of keeping a clipboard or log in your vehicle and recording where you drove as well as the total miles involved. However, there are also some great apps out there that help you track mileage also–including some that utilize GPS.
Expenses Deductible Regardless
There are a few car related expenses you can deduct regardless of which of the above methods you use. These are parking fees and tolls. This is probably because the standard mileage rate does not account for such expenses, and in reality, they’re not so much car expenses as “car-related” expenses.
E. Daniel Miller, CPA, PC
We’d love to be your advisers if you have questions, or even simply hear your comments. Please feel free to contact at (888) 734-3933 or [email protected].
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