Automobile (and Other Business Vehicle) Expenses
The question is how you want to deduct them.
In general, at the time you acquire the vehicle, you can select between two methods:2
The Standard Mileage Rate Method – you deduct a standard rate per mile you travel.
The Actual Expense Method – you deduct your actual costs and depreciate the price of the vehicle.
Standard Mileage Method
The standard mileage method is the simpler of the two. With this method, you determine your deduction by multiplying your business miles traveled during the year by the IRS standard mileage rate for the year, which is published in a yearly notice.3
Example. You drove 15,000 miles for business in the tax year. You multiply the 15,000 miles by the standard rate. If the rate during that tax year is say 56.5 cents per mile, your business deduction for that year is $8,475.
With this method, you cannot deduct other expenses relating to the car itself (like maintenance, depreciation, repairs, gas, etc).
However, you can deduct the cost of some related expenses, like parking fees and tolls.4
Substantiation. You must keep precise records of your total business mileage, including the time, place, and business purpose of each trip.5
Actual Expense Method
The name of the actual expense method pretty well summarizes how it works. You deduct your actual expenses of the car, including the purchase price (via depreciation), lease payments, gas, insurance, repairs, maintenance, and all other costs that come along with operating a vehicle.
Substantiation. Vehicles are , which means you have to keep detailed records for all expenses, including the date, the amount, and the business purpose.6 For more on this, see the glossary write up on .
As with the standard mileage method, you also need to keep a thorough mileage log that includes the mileage, date, time, place, and business purpose of each trip.
1 The rules discussed in this article apply to most business vehicles, including cars, trucks, and SUVs.
2 You can subsequently change from the standard mileage rate method to the actual expense method (with limitations on your depreciation), but you will not subsequently be able to change if you first elect the actual expense method. Rev. Proc. 2010-51, 2010-51 I.R.B. 883.
3 Rev. Proc. 2010-51, 2010-51 I.R.B. 883. For 2013 rates, see Notice 2012-72.
4 IRS Publication 463, “Travel, Entertainment, Gift, and Car Expenses” (2010), page 26.
5 IRS Publication 463, “Travel, Entertainment, Gift, and Car Expenses” (2010), page 26; Reg. Section 1.274-5T(b)(2) and (b)(6).
6 IRC Sections 280F(d)(4)(A), (d)(5); 274(d)(4). Reg. Section 1.274-5T(b)(2) and (b)(6).