Costs associated with operating a car, truck, or other vehicle are only tax deductible under certain circumstances. You must drive for business, medical purposes, because you are performing a charitable service, or sometimes because you are moving. The amount of your deduction is based on the number of miles you have driven for any of these tax-deductible purposes.
Business purposes include driving from your place of employment to another place of employment, meeting with clients, or going to a business meeting. Driving from your home to your place of work does not count as a business purpose: the Internal Revenue Service says that this is travel and is a personal expense. But if you maintain a home office, you travel 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 are self-employed, on Schedule F if you are a farmer, or as an itemized deduction as part of your unreimbursed business expenses on Form 2106 if you are an employee .
Medical purposes involve driving to obtain medical care for yourself or your dependents. The unit must be “primarily and essential for medical care,” according to the IRS. The deduction is taken on Schedule A as part of your itemized medical expenses.
Removals and Relocations
Starting in 2018, the Tax Cuts and Jobs Act of 2017 suspended the ability for non-military 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 moved for work-related reasons and your new place of employment was at least 50 miles further 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 the cost of the car if you use it when you provide services to a charity. 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.
Deduction of 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, vehicle personal property taxes, lease and rental expenses, insurance, fuel and gasoline, repairs including oil changes, tires, and other routine maintenance, and depreciation. . The different car expenses are deductible depending on the purpose of the trip. For example, you cannot claim interest, depreciation, insurance, or repairs if you drive for charity.
Because expenses related to personal use or commuting are not deductible, you must calculate the percentage of your total miles you drove for a tax-deductible reason. If your total miles were 18,000 and 9,000 (or half) of them were for business purposes, you can claim a deduction of 50 percent of the above costs.
Claim for standard mileage rates
Your other option is to use the standard mileage rate to calculate your deduction. The rate varies depending on the reason you drive and is indexed for inflation, so it can go up or down each year. Simply multiply the applicable rate by the number of miles you drove to determine the dollar amount of your deduction.
Standard Mileage Rate Changes for Fiscal Years 2019-2021
|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, the actual charges or the standard mileage rate?
You can use whichever method results in a larger deduction. This can vary from person to person depending on how many miles you drive, how much depreciation you’re claiming, and all other expense variables. Run the numbers both ways and find out which will be better for your tax situation.
Claiming the standard mileage rate generally results in less paperwork and is more suitable for situations where you sometimes drive your car for work, charity, or medical appointments. It also saves you from having to dig up all your car-related expense receipts and count them at tax time.
However, if you choose to use the standard mileage rate, you must choose that method in the first year you use your car for business purposes. If you start by claiming actual expenses, you will stay with that method as long as the vehicle is used for business.
keep good records
It’s a good idea to keep a mileage log in case you ever get called to prove you’re eligible to deduct your car and truck expenses. Enter the date of each tax-deductible trip you take, showing how many miles you drove and for what purpose. You’ll also need to know the total number of miles you’ve driven during the year, so it’s a good idea to report your odometer reading at the beginning of each year.
You’ll also need to keep track of your car expenses. An easy way to keep track of these expenses is to use a personal finance program. This will make it easier to report your total car expenses for the year at tax time.