Small businesses that use a car or other vehicle may be able to deduct the expense of operating that vehicle on their taxes. Businesses generally can use one of the two methods to figure their deductible vehicle expenses:
Methods to Deduct Vehicle Expenses
1. Standard Mileage Rate
2. Actual Car Expenses
Standard Mileage Rates for 2019
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
Using Actual Costs vs. Standard Mileage Rates
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 facts to help business owners understand the differences between the two methods of figuring their deductible vehicle expenses:
- 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. Then, in later years, they can choose to use either the standard mileage rate or actual expenses.
- If a business wants to use the standard mileage rate for a leased car, they must use this rate for the entire lease period.
- 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.
- A business that qualifies to use both methods may want to calculate their deduction both ways to see which method 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
For a full list of actual expenses and detailed calculation methods, businesses can refer to Publication 463, Travel, Gift and Car Expenses.
Small Businesses Vehicle Deductions (Closing Reinforcement)
Understanding these methods and options can help small businesses maximize their deductions and make informed decisions about their vehicle-related tax strategies.
Frequently Asked Questions
What are the two methods for deducting vehicle expenses?
Small businesses can deduct vehicle expenses using either the standard mileage rate or actual car expenses. Choosing the right method can affect the total deductible amount.
How do I know which method gives a larger deduction?
Businesses can calculate both methods, standard mileage and actual expenses, and then compare the results to determine which offers the greater deduction for their situation.
Can I switch from the standard mileage rate to actual expenses in later years?
Yes, if you use the standard mileage rate in the first year for a vehicle you own, you can switch to actual expenses in later years. However, the reverse isn’t always permitted.
Are there special rules for leased vehicles?
Yes, if you choose the standard mileage rate for a leased vehicle, you must use that method for the entire lease period. You cannot switch to actual expenses mid-lease.
What types of costs are included in actual car expenses?
Deductible actual car expenses may include gas, oil, insurance, repairs, tolls, licenses, and depreciation, among others. For a comprehensive list, refer to IRS Publication 463.