If you used your own car, truck or van for business purposes, you might be able to deduct some of the cost. It’s not the simplest part of the tax code, and there are a lot of exceptions, but knowing the basics could cut your tax bill.
Don’t be intimidated by the phrase “business use.” You don’t have to be a business owner to get this deduction. Even if you’re an employee, trips like these can get you a tax break for the 2017 tax year:
- Visiting clients or customers
- Going to a business meeting away from your regular office
- Travel from your main job to your second job
- Travel from home to a temporary (less than a year) work location
- Travel from your main job location to a temporary work location
Generally, you can deduct either:
- 53.5 cents per mile
- Your actual operating costs and depreciation
What’s not deductible
The IRS usually doesn’t allow a tax deduction for:
- The personal use of your vehicle
- Your daily commute to the office, even if you’re working on the way
- Parking at your regular place of business
- Tickets or fines related to your driving
- Interest on your car loan, if you’re not self-employed
- Mileage or expenses your employer reimburses
How to take the auto expenses tax deduction
1. Determine how much of your vehicle use was for business
Start by calculating how many miles you drove for business purposes during the year. Figure out what that is as a percentage of all the miles you put on the vehicle. For example, if you put 20,000 miles on your car during the 2017 tax year and 5,000 were for business purposes, then 25% of those miles were for business purposes.
Note: Contrary to popular belief, putting a display ad on your vehicle doesn’t mean you can write off every trip. Only trips for business purposes count.
2. Decide whether you’ll deduct actual expenses or flat rate
As noted, for the 2017 tax year you can deduct either:
- Your actual operating costs and depreciation
- A flat rate of 53.5 cents per mile
Figure your deduction both ways to see which is bigger. If your operating expenses were $5,000 for the year, then in our example the decision becomes whether to deduct:
- $5,000 x 25% business use = $1,250
- 53.5 cents x 5,000 miles = $2,675
Actual operating expenses generally include stuff like:
- Oil changes
- Lease payments
There are lots of rules about the depreciation; see IRS Publication 463 for the details.
Think ahead: Generally, if you deduct your actual expenses in the first year you use the vehicle for business, you can’t change your mind later and use the flat rate the next year.
“A lot of people don’t have the time or want to keep every single gas receipt and every single tuneup receipt. All of that stuff throughout the year is a lot to keep track of,” says Amy Northard, a certified public accountant in Indianapolis. “I think a lot of people end up opting for the mileage option, just because it’s easier.”
Putting a display ad on your vehicle doesn’t mean you can write off every trip. Only trips for business purposes count.
3. Remember the 2% rule
The auto deduction typically isn’t life-changing for many people, says Denver-area CPA Josh Bauerle. That’s because if you’re an employee, you can deduct only the amount that’s over 2% of your adjusted gross income for the 2017 tax year. So if your AGI is $100,000, you can deduct the expenses that are above $2,000. In our example, only the flat-rate method would get you a deduction in that case (it would be $675). The good news is a ton of other auto-related deductions are available. Scroll down to the bottom of the article to see a list of examples.
4. Gather your records
The IRS doesn’t accept guesses as proof you’re entitled to a deduction, Northard warns. Be sure you have receipts. To deduct mileage, you’ll need a record of:
- The purpose of the business trip
- The business miles driven on the trip
- The car’s odometer readings at the beginning and end of the year
5. Use Schedule A or Schedule C when you file your return
That’s where you figure your deduction. Schedule A is for individual filers; Schedule C is for the self-employed. If you want this deduction, you’ll have to itemize your taxes instead of taking the standard deduction. It’ll probably take more time, but you could end up with a lower tax bill. (Learn how to decide whether itemizing is worth it for you.)
But wait — there’s more!
The auto expense tax deduction isn’t the only way to write off vehicle expenses. Other parts of the tax code have car perks, too. Here are some examples of other things you might be able to deduct in the 2017 tax year, and where to learn more.
- 17 cents per mile or actual expenses while moving to a new home
- 17 cents per mile or actual expenses for medical purposes
- 14 cents per mile for volunteering
- 53.5 cents per mile to and from class or actual expenses for qualifying education
- 53.5 cents per mile for job hunting in your current field
- Donating your car to charity
- Unreimbursed damage to or theft of your car
- The portion of your registration that is personal property tax