If you drive your car for business purposes, the costs of operating and maintaining your vehicle are potentially deductible. Here are some guidelines.
The IRS provides two basic methods for computing deductions for the business use of an automobile.
Actual expense method. With the actual expense method, you deduct the actual costs of operation and ownership, including licenses, registration fees, garage rent, repairs, gas, oil, tolls, and insurance. Additionally, you may claim depreciation deductions if you own the car or your lease payments if the car is leased. Owners may be able to elect expensing under Section 179; however, restrictions apply.
Standard mileage rate. Alternatively, you may choose to use an IRS-provided standard mileage rate. With this method, you multiply the number of business miles you drive during the year by the applicable rate (53.5¢ per mile for 2017). When you use the standard mileage rate, you don’t separately deduct expenses such as gasoline, oil, insurance, repairs and maintenance, depreciation, or lease payments.
Which Should You Use?
If your vehicle is costly to own and operate, the actual expense method may be more advantageous. Conversely, if your vehicle is fuel efficient and/or inexpensive, the simpler standard mileage rate method may be a better choice.
With either method, the IRS requires that you keep records that substantiate your business use of the car: the date, place, business purpose, and number of miles you travel. When you use the actual expense method, you’ll also need records substantiating the amount and date of car-related expenditures.
If you decide to use the standard mileage rate for a car you own, you may switch to deducting your actual business-related car expenses in a later year. However, you won’t be able to claim accelerated depreciation deductions for the car. With a leased car, you have less flexibility. If you choose the standard mileage rate the first year, you must use it for the entire lease period.
Personal and Business Use
If you use your car for both personal and business purposes, you must keep track of your mileage for each purpose. To figure the percentage of qualified business use, divide the business mileage by the total mileage driven and then multiply that percentage by your total expenses.