When you use a vehicle for business, you can often deduct operating expenses on your tax return. You have two main options when it comes to auto expense deductions: standard mileage rate method or actual expenses method.
- Standard mileage rate: The IRS publishes a standard mileage rate that factors in the average cost of fuel, maintenance, repair, insurance, and depreciation. Parking and toll fees are also deductible business-related expenses, even though they are not included in the standard mileage rate.
- Actual expenses: This method lets you calculate the actual cost of operating the vehicle (including parking fees and tolls); you may deduct the portion of the actual operating expense that is attributable to the business use of the vehicle.
Depending on your situation, the actual expenses method or the standard mileage rate may lead to a larger deduction. However, you may want to keep in mind that unless the standard mileage rate method is used the first year a vehicle is put into service, you will not be able to use it in subsequent years. You’ll also need to remember that if you use the actual expenses method, depreciation can be restricted by the luxury car limitations (the IRS’s definition of luxury car is very broad and covers most vehicles).
Not sure which approach makes the most sense for your vehicle? Dealing with tax problems stemming from claiming incorrect auto expenses? Taxation Solutions, Inc. is here to provide tax assistance related to vehicle expenses and much more. Serving Mesa and the region, our enrolled agents and other tax relief professionals can address just about any tax question or concern. Contact us now to get started.