You have two options when calculating expenses related to the use of a business vehicle: "standard mileage" or "actual expense".
The IRS allows you to deduct actual expense whether you own the vehicle, or are leasing. Standard Mileage rates are subject to change throughout the year and can be limited by law.
Standard mileage rates for the use of a car, van, pickup or panel trucks:
- 56.5 cents per mile for business miles driven
- 24 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations (this is set by law)
You can add to your deduction any parking fees and tolls incurred for business purposes. (see Publication 463)
Reporting Actual Vehicle Expenses
- The following can be reported as Actual Expenses:
- Depreciation, Lease Payment, Registration Fees, Licenses, Gas, Insurance, Repairs, Oil, Garage Rent, Tires, Tolls, Parking Fees
- These expenses must allocated between Personal and Business costs. If the vehicle is used solely for business, 100% of the associated costs can be reported. If the vehicle is also for personal use, costs are reported (by percentage) how much the vehicle is used for business. For example:
- If 50% of your vehicle's use is for business, 50% of total vehicle costs can be reported as business expense.
- Record keeping is important: if you are audited, you'll need proof of its usage.
"Deductible Vehicle Expenses" apply when you are not being reimbursed.
- Rule of Thumb: Must be ordinary and necessary costs
- What does “ordinary and necessary” mean? These are costs associated with driving to-and-from work locations, visiting customers, attending a business meeting away from your regular work site, or leaving home to go to a temporary work location.
What does it ALL mean - Standard Mileage Rate vs. Actual Expenses, Which Is Better?
It depends on the vehicle you drive and the operating costs of the vehicle. If your vehicle gets great gas mileage, then taking the standard mileage deduction will likely be more beneficial for you. If your vehicle has very high operating costs and low gas mileage, then taking the actual expense deduction may produce better savings for you.
*You should always consult the IRS or a certified accountant to decide what deductions are applicable to your business.