Small businesses can benefit from deducting vehicle costs on their taxes. Businesses that use a car or other vehicle may be able to deduct the expense of operating that vehicle on their taxes.
Methods for Calculating Deductible Vehicle Expenses
Businesses generally can use one of the two methods to figure their deductible vehicle expenses:
- Standard Mileage Rate
- Actual Car Expenses
2019 Standard Mileage Rates
Here are the standard mileage rates for calculating the deductible costs of operating an automobile for business, charitable, medical, or moving purposes:
- 58 cents per mile driven for business use
- 20 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
Choosing Between Standard Mileage Rate and Actual Expenses
Of course, business taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. Here are some important facts to help business owners understand the differences between the two methods of figuring their deductible vehicle expenses:
For Owned Vehicles
- Businesses that want to use the standard mileage rate for a car they own must choose to use the standard mileage rate in the first year they use the vehicle.
- In later years, they can choose to use either the standard mileage rate or actual expenses.
For Leased Vehicles
- If a business wants to use the standard mileage rate for a car they lease, they must use this rate for the entire lease period.
Timing of Election
- The business must make the choice to use the standard mileage rate by the due date of their return, including extensions.
- They cannot revoke the choice once made.
Comparing Both Methods
- A business that qualifies to use both methods may want to figure their deduction both ways to see which gives them a larger deduction.
Examples of Actual Car Expenses That Can Be Deducted
- Licenses
- Gas
- Oil
- Tolls
- Insurance
- Repairs
- Depreciation – limitations and adjustments may apply
Frequently Asked Questions
What are the two methods to calculate deductible vehicle expenses for businesses?
Businesses can calculate deductible vehicle expenses using either the standard mileage rate or actual car expenses. The standard mileage rate simplifies recordkeeping, while the actual expense method requires tracking all costs but may result in a higher deduction.
Can I switch from the standard mileage rate to actual expenses in later years?
Yes, if the vehicle is owned, a business that initially uses the standard mileage rate can switch to actual expenses in future years. However, this flexibility does not apply to leased vehicles, where the same method must be used throughout the lease.
What are some examples of actual car expenses that are deductible?
Deductible actual car expenses include gas, oil, repairs, insurance, tolls, licenses, and depreciation. Each of these must be properly documented and directly related to business use.
When must a business elect to use the standard mileage rate?
The election to use the standard mileage rate must be made by the due date of the tax return, including extensions. Once made, the choice cannot be revoked for that tax year.
How should a business decide between the standard mileage rate and actual expenses?
It’s recommended that businesses calculate their deduction using both methods, standard mileage and actual expenses, and choose the one that provides the greater tax benefit. This comparison helps maximize potential savings.