Costs associated with operating a car, truck, or other vehicle are only tax-deductible under certain circumstances. You must be driving for business purposes, medical purposes, because you're doing charitable service, or—sometimes—because you're relocating. The amount of your deduction is based on the number of miles you've spent driving for any of these tax-deductible purposes.
Business purposes include driving from your place of employment to another work site, to meet with clients, or to go to a business meeting. Driving from your home to your workplace doesn't count as a business purpose—the Internal Revenue Service says this is commuting and that's a personal expense. But if you maintain an office in your home, traveling from your home office to meet with a client or to conduct business is tax deductible.
The deduction for business use of a vehicle is taken on Schedule C if you're self-employed, on Schedule F if you're a farmer, or as an itemized deduction as part of your unreimbursed business expenses on Form 2106 if you're an employee.
Medical purposes involve driving to obtain medical care for yourself or for your dependents. The drive must be "primarily for, and essential to, medical care," according to the IRS. The deduction is taken on Schedule A as part of your itemized medical expenses.
Moving and Relocating
Beginning in 2018, the Tax Cuts and Jobs Act of 2017 suspended the ability for nonmilitary taxpayers to use the moving expense deduction. For tax years prior to 2018, the cost of driving your car to move to a new residence was deductible as part of the moving expense deduction if you relocated for work-related reasons and your new place of employment was at least 50 miles farther from your old home than the distance between your old home and your old job. You must also have worked for your new employer for at least 39 weeks during the 12 months immediately following your move. This deduction was taken on Form 3903.
You can deduct car expenses if you use your car when you're providing services to a charitable organization. Driving to perform volunteer services for a church, charity, or hospital would be deductible. This deduction is taken on your Schedule A as part of your charitable donations.
Deducting Your Actual Expenses
You have two options for deducting car and truck expenses. You can use your actual expenses, which include parking fees and tolls, vehicle registration fees, personal property tax on the vehicle, lease and rental expenses, insurance, fuel and gasoline, repairs including oil changes, tires, and other routine maintenance, and depreciation. Different car expenses are deductible depending on the purpose of the drive. For example, you cannot claim interest, depreciation, insurance, or repairs if you're driving for charity reasons.
Because expenses related to personal use or commuting are not deductible, you must calculate the percentage of your overall miles that you drove for a tax-deductible reason. If your overall miles were 18,000, and 9,000—or half—of those were for business purposes, you can claim a deduction for 50 percent of the above costs.
Claiming Standard Mileage Rates
Your other option is to use the standard mileage rate to figure your deduction. The rate varies depending on why you're driving and are indexed to inflation, so they can go up or down by year. Simply multiply the applicable rate by the number of miles you drove to determine the dollar amount of your deduction.
|Business||58 cents per mile||57.5 cents per mile||56 cents per mile|
|Medical or moving||20 cents per mile||17 cents per mile||16 cents per mile|
|Charitable service||14 cents per mile||14 cents per mile||14 cents per mile|
Taxpayers can also deduct parking fees and tolls in addition to the standard mileage rate, but no other actual expenses.
Which Is Better—Actual Expenses or the Standard Mileage Rate?
You can use whichever method results in the larger deduction. This can vary from person to person depending on how many miles you drive, the amount of depreciation you're claiming, and all the other expense variables. Crunch the numbers both ways and figure out which will be best for your tax situation.
Claiming the standard mileage rate generally results in less paperwork and is best suited for situations in which you drive your car sometimes for work, charity, or medical appointments. It also saves you from having to dig up all your car-related expense receipts and tallying them up at tax time.
If you opt for using the standard mileage rate, however, you must choose that method in the first year you use your car for business purposes. If you begin by claiming actual expenses, you'll be stuck with that method for as long as the vehicle is being used for business.
Keeping Good Records
It's a good idea to keep a mileage log in case you're ever called upon to prove you're eligible to deduct your car and truck expenses. Enter the date of each tax-deductible trip you make, showing how many miles you drove and for what purpose. You'll also need to know the total number of miles you drove for the year, so it's a good idea to indicate your odometer reading at the first of each year.
You'll also need to keep track of your automobile expenses. An easy way to keep track of these expenses is to use a personal finance program. This will make it easier at tax time to generate a report of your total car expenses for the year.