How To Maximize Business Use Car Tax Deductions
Whether you use your car only for work or for both work and personal reasons, many taxpayers wonder how they can maximize end-of-year vehicle tax deductions.
There are two methods to calculate expenses for business use car tax deductions:
- the standard mileage rate method
- and, the actual expense method
It is up to the taxpayer to decide which one is best. Which method do you chose? This post provides an overview of both methods so that you can find the one that is best for you.
The Standard Mileage Rate Method
The standard mileage rate is a method of deducting an IRS established per mile tax-deductible dollar amount for each mile driven for business purposes. Further, this method can only be used by the owner or lessor of the vehicle. For 2019, the standard mileage rate method is $0.58 per mile (for an updated list of each year’s standard mileage rate deductions please go, here). To use this method the taxpayer must keep a record or log of the miles traveled for business, the destination and business purpose (IRS Publication 463, Ch 5, Recordkeeping). In addition, the taxpayer must document proof of ownership of the vehicle or a lease. At the end of the year, this information will be added to the individuals’ tax return using the IRS Form 2106. Also, you can include any business-related parking and tolls expenses with the standard mileage rate deductions.
The standard mileage rate cannot be used if the taxpayer:
- Uses the car for hire (such as a taxi)
- Uses five or more cars at the same time (as in a fleet operation)
- Claims depreciation or a section 179 deduction (Publication 463, Chapter 4)
- If a rural mail carrier receives a qualified reimbursement (Publication 463, Chapter 4).
The following should be included in a Standard Rate Mileage method mileage report:
- the miles you drove for business (ie your mileage)
- the places you drove for business
- the business purpose of your trip
- the date of your trip
Falcon Expenses is a fully mobile app for iPhone for expense capture and reporting. Falcon Expenses offers a variety of mileage expense tracking features that are excellent for meeting this IRS requirement. Please review the posts below, for more information about Falcon Expenses and these features.
- How to Track Mileage Expenses with Falcon Expenses
- How to Keep an Odometer Log of Business Mileage with Falcon Expenses
- What is Included in Falcon Expenses Mileage Expense Log
- How to Create an Mileage Log with Falcon Expenses
The Actual Car Expense Method
The actual car expense method allows taxpayers to deduct the following vehicle and vehicle-related expenses:
- Lease payments
- Registration fees
- Garage rent
- Parking fees
If business use of the car is less than 100%, expenses must be proportionally allocated between business and personal use. For example, say you drive your car 20,000 miles in one year–10,000 for business and 10,000 for personal. In this case, the taxpayer can only deduct 50% of the vehicle’s expenses from their tax return. Therefore, in the cases of mixed personal and business use of the car, it is recommended that the taxpayer keep a log of the miles traveled and distinguish the business from personal travel. This will facilitate ease in the determination and calculation of the percentage of vehicle usage for business purposes. In addition, the taxpayer should keep receipts and invoices of vehicle expenses. Taxpayers that use the Actual Car Expense method can use IRS form 2106-EZ, Unreimbursed Employee Business Expenses, to claim these expenses on their tax return. This form can be found, here.
Whether you should use the standard mileage rate or the depends on your vehicle and the amount that you drive your vehicle for work. With strong record keeping calculating the deductions for both methods can help the taxpayer determine which method will maximize their tax return. Both methods require the taxpayer to keep a mileage log.
- IRS Publication 463, Chapter 4, Transportation, Standard Mileage Rate
- IRS Publication 463, Ch 4, Transportation, Actual Car Expenses
- IRS tax return form for Standard Mileage Rate deductions and other employee business expenses: Form 2106
- Car and Truck Expense Deduction Reminders
- The IRS Standard Mileage Rate Deduction Amounts
- Unreimbursed Employee Business Expenses Form 2106-EZ
About Falcon Expenses, Inc.
Falcon Expenses is an iOS solution for expense tracking and management. Scan receipts, we type merchant, date and amount, auto-track mileage expenses via GPS and log billable hours with an integrated timer. Quickly organize expenses by time period, project or client and easily prepare reports for email to anyone in PDF or spreadsheet formats, all from your phone. Use for reimbursements, taxes, record keeping or invoicing. Falcon Expenses is great for professionals, freelancers, realtors, business travelers, truckers and more. Find out more, here.