Vehicle Expenses

Deducting your business-related car and truck expenses can slash your taxes substantially, saving you hundreds, even thousands, of dollars!

There are two methods for figuring your deduction:

  • The Mileage Allowance Method: Instead of collecting receipts for your out-of-pocket operating expenses and computing depreciation deductions every year, the IRS lets you use a flat rate to deduct your business mileage.
    • The IRS business mileage rate takes into account:
      • Operating expenses for your vehicle.
      • An allowance for Depreciation.
    • It does not take into account and you may deduct the following items in addition to your mileage allowance
      • Parking fees
      • Tolls
      • Towing charges.
      • Interest on your car loan related to business use (not the personal use percentage of total miles traveled for the year)
  • The Actual Expense Method: Under the actual expense method you may deduct business-related operating expenses plus depreciation.
    • Depreciation (see annual limits for passenger cars and light trucks, van, and SUVs)
    • Fuel
    • Garage rent
    • Insurance
    • Interest on your car loan: Self-employed persons can deduct interest on a car loan. Employees are out of luck. Car loan interest is not deductible even if the vehicle is used for the job.
    • Lease payments
    • Oil
    • Parking fees & tolls
    • Registration fees
    • Repairs and maintenance

Switching Methods If you elect to start out using the actual expense method for a particular vehicle the first year the vehicle is placed in service, you cannot use the standard mileage rate for that vehicle in a later year. You must continue using the actual expense method for that vehicle.

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