Q. I’m using my personal car in my business. How much can I deduct on my tax return for the vehicle expenses?
A. There are two basic ways to write off expenses for business-related travel:
- The standard mileage method. This provides a basic deduction for mileage and provides built-in depreciation. For 2017, the mileage rate is 53.5 cents per business mile driven (down from 54 cents in 2016). The tax law restricts the use of the standard mileage method. A taxpayer cannot use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles used simultaneously.
- The actual expense method. This gives you a depreciation allowance for the cost of the vehicle, plus deductions for gasoline and oil, insurance, and repairs. You generally wind up with a larger overall deduction than if you used the standard mileage method. You can write off the cost of the car based on the percentage of business use. For example, if the car is used 80% for business, you can write off 80% of the allowable expenses for that year.
Take Notes. To use the actual expense method, you must keep a log and record the time, place, mileage and business purpose of each business trip, and the total mileage for the year. That lets you calculate the business use percentage.
How does the IRS calculate the standard mileage rate for business? It is based on an annual study of the fixed and variable costs of operating an automobile.
There may be other limitations involved in tax-deductible business driving. Consult with your tax advisor for information about the best ways to buy and operate a business car for tax purposes.