Deducting Business Auto Expenses

Alloy Silverstein’s Tax Tip of the Week

Now that 2018 models are in the showrooms, you may be shopping for a new car for your business. Be aware that you can use one of two methods, the actual expense method or the standard mileage rate, to deduct business auto expenses (other special rules apply to leased car deductions).

So how can you get more mileage out of your business car? Although the actual expense method is more work, it could provide a bigger deduction. Here’s a quick recap:

Actual expense method:

This encompasses all your expenses: oil, gas, repairs, insurance, tires, registration fees and licenses, as well as a generous Section 179 and/or depreciation allowance. Keep in mind that there a special rules limiting annual write-offs for cars deemed “luxury cars” by the IRS. The deduction is based on your percentage of business use.

Standard mileage rate method:

Alternatively, you can use the IRS-approved standard rate, which is 53.5 cents per business mile in 2017 and adjusted annually. You can also tack on the cost of business-related tolls and parking fees to the standard rate.

Both methods require detailed recordkeeping for business trips, but the standard mileage rate can be less of a hassle because you don’t have to keep track of every expense. Nevertheless, the extra work may be worthwhile. In particular, you may benefit from a Section 179 and/or depreciation allowance, including 50 percent “bonus depreciation,” in the first year of ownership if you use the actual expense method. With the standard mileage rate, the cost of depreciation is accounted for in the annual rate prescribed by the IRS.

Other Factors

“In addition to using your car for business, if you drive your car for a charity you may use the standard mileage rate of 14 cents per mile. If you have to use your car to travel to doctors or hospital in medical treatment, you may use the standard mileage rate of 19 cents per mile plus tolls and parking.” – Mike Engleman, CPA

Keep in mind the rates change each year. “If you are amending a tax return or not doing the current year’s return, you will need the look up the standard mileage rate on the IRS website for the specific year you are filing.” – Chris Cicalese, CPA, MSTFP

Further Reading by Ren Cicalese III, CPA, MST:

Taxes and Mileage 101: What Can I Deduct on My Tax Return?

Which mileage rate is best for you depends on your individual tax situation. Your Alloy Silverstein accountant and advisor can help you do the math to find the best tax result. Contact us for more guidance.

 
© MC 2017 | “Tax Tips” are published weekly to provide current tax information, tax-cutting suggestions, and tax reminders. The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.