When you use your car for business, the IRS allows you to deduct that expense from your taxable income.
You’ll itemize your deductions, using Form 2106 (Employee Business Expenses) if your employer partially reimbursed you for expenses. If your employer provided no reimbursement at all, you’ll use Form 2106-EZ (Unreimbursed Employee Business Expenses) to claim your costs. If you’re self-employed or work as a contractor, you’ll claim expenses on Schedule C. If you file your taxes online, the tax provider will ask about your mileage during the interview process and calculate the deduction for you.
The standard mileage deduction is the most straightforward way of calculating your driving expense. You’ll need to track your business-related mileage with a log or smartphone app, but figuring out your deduction is easy: You simply multiply by the IRS’ allowable rate.
You also have the option of tracking and deducting the actual expenses you incur while using your vehicle.
As a rule of thumb, don’t even consider using actual costs if you use your vehicle less than 50% of the time for business. The standard mileage deductions keep things simple as long as you keep track of all your miles.
Standard mileage deduction rates
With the standard mileage method, the deduction depends on how you used your vehicle. Per the IRS, the rates are:
|2016 tax year||2017 tax year||2018 tax year|
|Business miles||54 cents / mile||53.5 cents / mile||54.5 cents / mile|
|Medical and moving miles||19 cents / mile||17 cents / mile||18 cents / mile|
|Charitable miles||14 cents / mile||14 cents / mile||14 cents / mile|
Commuting to work is not considered a deductible expense.
Some people can’t use the standard mileage rates — for example, those who used an employer-provided vehicle or who racked up the mileage as a limo or taxi driver. You can’t use the standard mileage rates if you used five or more vehicles simultaneously, which makes you a fleet owner and ineligible.
And you can’t use the standard mileage rates if you used the actual expenses method in the previous year.
Actual mileage method
If more than half your driving last year was for business, you might want to consider using the actual expense method. You can do so when you keep track of all the allowable costs associated with the use of your car or truck.
If you choose to deduct actual expenses, you can include the business portions of your vehicle costs associated with:
- Lease payments
- Registration fees
- Gas and oil
- Garage rent
- Parking fees
Because vehicle depreciation is largest in the first year, you’ll want to give the Section 179 deduction serious consideration if you purchased a new vehicle for use in your business. The Section 179 deduction, a special rule intended to help small businesses, applies only to an asset’s first year of use. There are other detailed limits on the deduction, which you can read about on the IRS website.
No bonus depreciation, a special depreciation allowance, is in effect this year.
Tracking your mileage
To make the most of the mileage deduction, you need to keep track of your miles. There are lots of ways to do this. Something as simple as keeping a pen and paper in the glove compartment can suffice, but a quick trip to Google or the App Store will reveal a variety of online tools, apps and even in-car trackers that can streamline things. No matter how you do it, do it. The IRS may require you to produce your records if you’re audited.
This post was updated on Jan. 27, 2017.