Tax Guide

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Deducting Auto Expenses

If you use your personal vehicle for business purposes, you can usually deduct your business expenses for that vehicle. You generally can choose from two ways of deducting: either claim the standard mileage rate, or report the actual expenses incurred while carrying out business-related activities.

Standard Mileage Rate

Claiming the standard mileage rate is the simpler option. For 2018, the rate is 54.5 cents per mile.

With the mileage rate, you won't be able to claim any actual car expenses for the year. You cannot also claim lease payments, fuel, insurance and vehicle registration fees. Also, if you use your vehicle for both business and personal use, you can deduct only the business miles.

To use the standard mileage rate for your vehicle, you should use it in the first year that your vehicle is available for use in your business. In later years, you can choose to use either the standard mileage rate or actual expenses. Lease vehicles are treated a little differently: if the standard mileage rate is the preferred method, you’ll have to use that method for the entire lease period.

Once you’ve settled on the standard mileage rate for your vehicle on your return, you can’t revoke the choice for that year. For example, if you claim the standard mileage rate and your return is accepted, if you have to amend that return for some reason, the standard mileage rate has to be used on the amended return too. You can, however, switch to the expense method on next year’s return.

Actual Vehicle Expenses

For claiming actual vehicle expenses you can include:

  • Depreciation
  • Licenses
  • Gas and oil
  • Tolls
  • Lease payments
  • Insurance
  • Garage rent
  • Parking fees
  • Registration fees
  • Repairs
  • Tires

As with the standard mileage rate, you must divide your expenses between business and personal use. If your vehicle is provided by your employer, you can deduct the unreimbursed expenses you paid during the use of the vehicle – but you cannot claim the standard mileage rate. 

There are special rules that govern car loan interest deductions. If you're an employee, car loan interest is not deductible, even if you use your personal vehicle only for business purposes. Interest in that case is considered personal interest by the IRS. Self-employed taxpayers may deduct car loan interest, provided they deduct only that portion related to business use of the vehicle.

Taking the Deduction

To take a vehicle expense deduction for a business, first add the Schedule C – Business Income and Expenses screen to your return. Complete the top informational section; you can also complete the Income fields at this time or come back to the form and do it later. Click Save at the bottom of the form.

Now add the Auto Expense Worksheet screen. This screen is where you can detail the expenses you paid for your vehicle during the year. Don’t forget to set the drop menu for “Worksheet is for:” to Schedule C at the top of the screen.

On the screen, you can select the standard mileage rate method by just entering the number of business miles you’re claiming. We'll take care of the math for you. For those using the actual expenses, the next section has fields for all the vehicle expense categories – gas, oil, insurance, repairs, even tolls. If you qualify for both methods of deduction, and you have the records to back it up, you may want to figure your deduction both ways to find which gives you the best bottom line.

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