Copyright 2020 - Pfeiffers Accounting & Consulting LLC

If you use your car in you job or business and it is ony used for business, you may deduct all costs associated with operating it ( but subject to certain limits discussed later). If you use your car for both business and personal use in your business, you may only deduct the business portion.  So how do you figure out what costs you deducct or not?  Well simply stated, you can figure out your deductible car expenses using one of two methods:

1. The standard mileage rate.

2. The actual expense method.

Let's look at the standard mileage rate first.  For 2012 beginning in January, the standard mileage rate for  the use of a car (also van, pickup, or panel trucks) is as follows:

1. 55.5 cents per mile for business miles driven.

2. 23 cents per mile driven for medical or moving purposes.

3. 14 cents per mile driven in service of charitable organizations.

Some important stipulations in using the standard mileage rate per the IRS are as follows:

1. If this is a car you own, you must use the the standard mileage rate in the first year that the car is available to use.  In later years, you may choose either the standard mileage rate or the actual expenses.

2. If this is a car you lease, you must use the standard mileage rate method for the entire lease (including renewals on the lease).

3. The standard mileage rate may not be used for more than four vehicles simultaneously.

4. The standard mileage rate may not be used for any vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.

5. Beginning in  2011, a taxpayer may use the business standard mileage rate for vehicles used for hire, such as taxicabs.

Secondly, looking at the actual expense method, you must determine what it actually costs to operate the car for the portion considered business use.  The deductions you can use for actual costs include: gas, oil, tires, insurance, registration fees, licenses, and depreciation which are attributed only to the portion of business miles driven.

Note that other car expenses such as parking fees and tolls attributable to business use are separately deductible. It does not matter which method you are using to use these deductions.

If you qualify to use either the standard mileage rate or actual expenses, which one should you choose and how do you decide? Here are some things to consider when making that choice:

1. If you drive a large number of business miles, this will favor taking the standard mileage rate.

2. If the purchase price of  your vehicle is larger, this encourages using actuals.

When considering car deductions, it can be somewhat difficult to choose.  Just make sure that you keep adequate records for whatever method you choose.  The IRS  suggests you keep these records 3 years from filing your returns. As long as you follow these guidelines, you will have an additional deduction for your car on your tax return to come.

Copyright Jeanine Pfeiffer


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