Deducting Business Related Auto Expenses

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By: Tax Hotline
Summer 2019 (Vol. 37, No. 2)

If you’re self-employed and use your car for business, you can deduct certain business-related car expenses.

There are two options for claiming deductions:

ACTUAL EXPENSES. To use the actual expense method, you need to figure out the actual costs of operating the car for business use. You are allowed to deduct the business-related portion of costs related to gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments).

STANDARD MILEAGE RATE. To use the standard mileage deduction, multiply 58 cents (in 2019) by the number of business miles traveled during the year. Car expenses such as parking fees and tolls attributable to business use are deducted separately no matter which method you choose.

Which Method is Better?

For some taxpayers, using the standard mileage rate produces a larger deduction. Others fare better tax-wise by deducting actual expenses. You may use either of these methods whether you own or lease your car.

To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. In subsequent years, you can choose to use the standard mileage rate or actual expenses. If you choose the standard mileage rate and lease a car for business use, you must use the standard mileage rate method for the entire lease period - including renewals.

Opting for the standard mileage rate method allows you to bypass certain limits and restrictions and is simpler; however, it’s often less advantageous in dollar terms. Generally, the standard mileage method benefits taxpayers who have less expensive cars or who travel a large number of business miles.