Disclaimer: We are not tax return preparers, accountants, or lawyers. Please speak with a professional before you attempt any tax changes.
Tax season—makes you feel like an adult, doesn’t it? Whether you’re doing your taxes for the first time or the fiftieth, a common question that always pops up is “Can I write off my vehicle or its operating costs as an expense?
The short answer is that you cannot deduct the full cost of the vehicle unless it is exclusively used for business; however, you can and should deduct where you can.
While the IRS does allow writing off vehicle expenses, they are pretty strict about it. If you drive your vehicle for work purposes and intend on writing off those business miles, keep a detailed log of all expenses, including parking, tolls, gas, car washes, repairs, and maintenance.
We recommend purchasing a vehicle expense log at your office supply store or online and keeping it in your car. Unfortunately, you cannot deduct commuting costs. Taking public transportation or driving a vehicle to and from your workplace is never deductible. If, however, you have a business-related trip to another location, you can deduct the cost of travel (IRS).
You might qualify for one or more of these options for personal, business or self-employed deductions:
1. Vehicle Donation
If you donate your used car, truck, boat, or anything else for that matter, you may be eligible for a deduction. Make sure you donate to a “qualified organization.” Click here for a listed of organizations eligible to receive tax-deductible charitable contributions. Learn the rules for vehicle donations here.
If you’d prefer quick cash, consider selling your car to Auto Simple.
2. Medical Purposes
If you use your vehicle for medical purposes, such as transporting yourself or one of your dependents to and from a medical facility, you may be eligible for a tax deduction. The IRS allows deductions for medical care, including gas, public transportation fare, and parking fees.
Keep in mind that you cannot deduct medical expenses if you are already being reimbursed by your insurance provider or employer.
3. Moving or Relocating
You will want to check the details, but if you are relocating or moving to a new city seeking work, you may be eligible for tax deductions, including parking and shipping, travel, and lodging costs. This would all fall under your “moving expense deduction.” Keep in mind that you have to relocate at least 50 miles to your new work location to qualify.
4. Business Use
If you are self-employed, you can deduct nearly any cost for business use, even if your car doubles as your personal vehicle. Just make sure you are separating business trips from personal ones.
In order to claim a deduction, the costs must be related to one or more of the following:
- Traveling from one work location to another within the taxpayer’s tax home area. (Generally, the tax home is the entire city or general area where the taxpayer’s main place of business is located, regardless of where he or she resides.)
- Visiting customers.
- Attending a business meeting away from the regular workplace.
- Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. (These temporary workplaces can be either within or outside taxpayer’s tax home area.)
Keep in mind that travel from your home to your regular place of work “are commuting expenses and are not deductible” (IRS).
When deducting vehicle-related expenses, you can either choose standard mileage rate or actual expenses.
If you run a small business and have one or more vehicles that are used exclusively for business use, you can deduct them as part of your operating expenses. Make sure you keep careful track of all your repair and maintenance records.
Should I use standard mileage rate or the actual expenses incurred for a vehicle?
You have the choice to use the standard mileage rate or the actual incurred costs for a vehicle that is owned or leased. Usually, if you have a more energy-efficient and reliable car, the standard mileage rate will yield better results. If you expect the operating costs to be pretty high (maintenance, tires, repairs, etc.), you’ll be better off using the actual cost method. More expensive cars, trucks, SUVs, and minivans may want to choose the actual expense method. Keep in mind, however, that the standard mileage rate method is the simpler process.
Standard mileage rate takes the place of actual expenses. You cannot choose the standard mileage rate (around 44.5 cents per mile) and then also deduct expenses such as depreciation, maintenance, gas, and repairs. Business-related parking and toll fees, however, can be deducted in addition to standard mileage rate.
You cannot use the standard mileage rate if:
- You use the car for hire (such as a taxi)
- You use five or more cars at the same time (such as a fleet operation)
- You claim depreciation or a section 179 deduction
- You are a rural mail carrier who receives a qualified reimbursement
If you choose the actual expense method, you will need to keep detailed records or any business-related expenses, such as:
- Lease payments
- Registration fees
- Garage rent
- Parking fees
Whichever method you choose, you will need to allocate your expenses based on personal and business use (if business use is less than 100%).
What records are required?
The types of records required by the IRS depend on if you choose the standard mileage rate or actual expenses. For both, you should have a daily log of miles traveled, destination, and purpose (business or personal).
If you choose actual expenses, you should also retain all records, receipts, invoices, and any other documentation showing which expenses were incurred. For the depreciation section, you will need to know the original cost, plus any improvements, and documentation showing the date of service.
Is driving to and from my workplace considered a business expense?
Commuting back and forth from your home to your workplace is not considered business-related. It is commuting and cannot be deducted on either your business or individual tax returns.
Additionally, any toll or parking expenses related to commuting are personal expenses that cannot be deducted.
Can I deduct travel expenses on business trips?
Although you may not deduct any commuting costs, you can deduct business travel costs when traveling for your job, including meals, lodging, and travel.
According to irs.gov:
“You can deduct actual expenses or the standard mileage rate, as well as business-related tolls and parking fees. If you rent a car, you can deduct only the business-use portion for the expenses.”
What is a vehicle expense?
If you use your car for business, you can deduct interest on auto loans, registration fees, repairs, parking fares, and tolls.
Here are some common vehicle expenses:
- Repairs and maintenance
- Registration fees and taxes
- Vehicle loan interest
- Lease payments
- Parking and space rental fees
If you drive a vehicle for your job, your employer normally reimburses any vehicle-related expenses. The employer writes off the vehicle expenses. That means you cannot deduct any vehicular expenses.
However, if you pay out of pocket for vehicle and travel expenses on behalf of your employer, you can claim an unreimbursed employee business expense deduction as a miscellaneous itemized deduction.
Can I deduct interest on car loans?
According to the IRS:
“If you are an employee, you can’t deduct any interest paid on a car loan. This applies even if you use the car 100% for business as an employee. However, if you are self-employed and use your car in your business, you can deduct that part of the interest expense that represents your business use of the car. For example, if you use your car 60% for business, you can deduct 60% of the interest on Schedule C (Form 1040). You can’t deduct the part of the interest expense that represents your personal use of the car.”
- Vehicle use for business purposes is a legitimate deductible expense that should be claimed.
- Always maintain detailed records (keep a vehicle expense log).
- Use the standard mileage rate if you don’t anticipate many vehicle expenses.
- Speak with professional tax preparer.
If you’re selling, purchasing, or trading in your next vehicle for business purposes, speak with a professional at Auto Simple to help you deduct all the related car expenses.
Sometimes, you find out that you are paying the IRS more than you owe. If that’s the case, the IRS now owes you. This is called a tax refund and you determine the amount when you fill out your tax return.
If you have any questions, don’t hesitate to speak with one of our Online Specialists or give us a call:
Chattanooga, TN – (423) 551-3600
Cleveland, TN – (423) 472-2000
Dayton, TN – (423) 775-4600
Dalton, GA – (706) 217-2277