Many types of jobs involve traveling long distances by car. Since expenses related to this mileage are ordinary and necessary for a business, they are usually deductible from taxes. Mileage on any type of vehicle can qualify for the deduction, and it does not matter whether the businessperson actually owns the vehicle. People tend to use the standard mileage rate for deductions, although some people deduct their actual expenses. The standard mileage rate is set each year by the IRS, which assigns a certain number of cents to each business mile. (In 2019, the rate is 58 cents per business mile, while it is 20 cents per mile driven for medical or moving purposes and 14 cents per mile driven for charitable purposes.) You can then calculate your deduction by multiplying that number by the total number of miles that you drove that year.
The standard mileage rate covers any expenses for operating your car, including insurance, registration fees, repairs to the car, and gas. In addition, you can separately deduct expenses related to interest on a car loan, tolls, parking fees, and any personal property tax related to buying the car. You cannot deduct the costs of parking tickets or any fees for parking your car at your business. To take advantage of the standard mileage rate, you must use it in the first year that you use that vehicle for business. If you own your car, you do not need to use the standard mileage rate in every year thereafter. You can switch back and forth between the standard mileage rate and the actual expense method in later years as needed. If you lease your car, by contrast, you must use the standard mileage rate in every year of the lease if you use it in the first year.
The Sample Method for Calculating the Standard Mileage Rate
You can apply the standard mileage rate in one of two ways. First, you can record each mile that you drive throughout the year. As a simpler alternative, many businesspeople prefer to record their miles during a sample period of the year and then use that period to calculate their total business mileage. This makes sense if your business travel remains roughly steady throughout the year. To use the sample method, you will need to record your business appointments throughout the year. This will prove that your mileage was about the same.
A sample period lasts for at least 90 days. These days do not need to be consecutive. You could choose to use a certain week in each month as the sample. You do not need to use any particular part of the year as the sample. Instead, try to use a sample that accurately reflects your normal rate of travel. You will be responsible for removing any atypical mileage from the calculation.
Using the Actual Expense Method
The actual expense method involves recording all of the expenses related to your car, including gas, repairs, insurance, registration fees, and more. You can deduct the percentage of those costs that is proportionate to your business use of the vehicle. Most businesspeople do not find it worthwhile to go to this trouble unless it would make the deduction significantly larger than using the standard mileage rate.
You also can apply a depreciation deduction to the car over multiple years, within certain limits set by tax laws. These limits previously were very restrictive, but the Tax Cuts and Jobs Act raised them in 2018. If you buy an expensive car, you may want to consider using the actual expense method to calculate your deduction because the depreciation deduction may result in a much greater deduction overall. As noted above, though, you will want to weigh the pros and cons of this method carefully in the first year after you purchase the car. You will not be able to change to the standard mileage rate if you use the actual expense method in the first year.