Business Expense 101 – Tax Deductible Car and Truck Expenses

There are several different types of tax deductible car and truck expenses that individuals and business taxpayers are eligible to deduct on their return. The record-keeping requirements are the same no matter what type of tax deductible car and truck expenses you claim.

Deductible Vehicle Expenses

There are two methods of claiming car and truck expenses. You can either claim standard mileage or actual expense. The IRS standard mileage rate differs year-to-year. 

The 2016 rates are:

  • 54 cents per mile for business miles driven, down from 57.5 cents for 2015
  • 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015
  • 14 cents per mile driven in service of charitable organizations

Standard mileage is the easier of the two to maintain for record-keeping purposes. You simply keep a mileage log documenting your business miles, medical or moving purpose miles, or charitable purpose miles and multiply the miles by the IRS mileage rate.

If you opt to claim actual miles, you may be eligible to deduct:

  • Depreciation on your car or truck
  • Fuel expense
  • Repair expense
  • Insurance expense
  • Parking fees
  • Personal property tax
  • Lease and rental expense
  • Vehicle registration
  • Loan interest

Should I Deduct Standard Mileage or Actual Expense?

It depends on what type of vehicle you drive. IRS determines the rate based on the upkeep costs of operating a typical/average vehicle, and then computes the per mile cost based on this amount. The only way to be completely certain is to calculate using each method and compare the two at the end of the year to see which amount is higher.

As a rule of thumb, if the following apply to you, your actual expenses are probably higher:

  • Drive an older vehicle with high maintenance costs
  • Drive a vehicle with low fuel efficiency (e.g., SUVs and trucks)
  • Drive an expensive vehicle

Conversely, you should use standard mileage when:

  • Drive a newer vehicle with low maintenance costs
  • Drive a vehicle with high fuel efficiency (e.g., compact cars and hybrids)
  • Drive an inexpensive vehicle

Where do I Deduct My Car and Truck Expenses?

There are various areas on the return where you may be eligible to claim your tax deductible car and truck expenses:

  • Medical and dental expense (Schedule A, line 1): If you itemize, you can deduct expenses when you use your vehicle for medical purposes. Keep in mind that medical and dental expenses must be greater than 7.5% of your AGI to be able to deduct these expenses.
  • Charitable contribution (Schedule A, line 17): If you itemize, you can deduct vehicle expenses when you use your vehicle for a qualified 501(c)(3) charitable organization.
  • Unreimbursed employee expenses (Schedule A, line 21): If you are a W-2 (wage) employee and you use your vehicle for business purposes, you may be able to deduct vehicle expenses. There are two caveats: First, mileage to and from a regular place of work is not deductible. Second, if you are reimbursed for mileage by your employer, you may not deduct mileage unless your employer reports the reimbursement on your W-2. If you are a salesman, for instance, and you have a regular office, then distance from your office to sales sites is business mileage). If you do not have a regular office that you go to (i.e., you work out of your home), then all the mileage would be deductible.
  • Schedule C expenses (Schedule C line 9, 13, 20):If you are self-employed and are a sole proprietor or sole member LLC, you are eligible to deduct vehicle expenses on these lines. On line 9 include expenses for gasoline, oil, repairs, insurance, tires, license plates, etc. Show depreciation on line 13 and rent or lease payments on line 20a.

What Kind of Records do I Need to Keep?

Regardless of whether you claim standard mileage or actual expense on your return, you must keep a mileage log. In addition, you must provide third party documentation of mileage. That is, you need to provide odometer readings recorded by repair shops or vehicle inspections. You should have two odometer readings – one from the beginning of the year and one from the end of the year. If you are audited, odometer readings allow the auditor to confirm the accuracy of your mileage log.

While there is no IRS approved mileage log or specific format, your log should indicate the points you traveled to and from and the mileage between each location.

If you claim actual expenses, you must also keep receipts and invoices for your vehicle expenses. You may keep bank or credit card statements instead, but the IRS preferred method is to receipts and invoices.

You should always consult with a tax professional before making any decisions about how to best resolve your particular matter.

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