Tax Deduction of Business Car Use: Mileage Allowance or Actual Expenses?

If you use your car for business, you can calculate your tax deduction two ways:  (1) using the IRS standard mileage allowance rates or (2) a percentage of your actual automobile expenses.  The standard mileage allowance rates:

2019  58.0 cents

2018  54.5 cents

2017   53.5 cents

2016  54.0 cents

2015  57.5 cents

Calculating your tax deduction using the standard mileage allowance rates is very simple.  Multiply your number of business-related miles by the rate shown above, then add your parking costs and bridge tolls.

Or, you can keep track of your actual expenses, including gas, repairs, insurance, and registration.  To that total, add depreciation, and then multiply the whole thing by your percentage of business use.  Percentage of business use is calculated by dividing your business miles by your total miles for the year. (Example:  If you drive 12,000 miles and 6,000 of those miles are for business, your business percentage is 50%.) Depreciation amounts depend on the value of the vehicle, the type of vehicle, the date first placed in service, and whether the vehicle is used more or less than 50% for business.

You can use whichever of these two methods gives you the larger tax deduction.  However, if you use the mileage allowance rates for the first year, you cannot claim depreciation in the following years.

In either case, you can also deduct the business percentage of the interest you pay on a car loan.

There are special rules for businesses which

  • Rent out their vehicles
  • Have more than 5 vehicles,
  • Have modified vehicles so that they are no longer passenger vehicles, such as by removing seats or adding shelving to vans.

There are additional special rules, such as lease inclusion amounts, so before you commit a significant amount of money to buying or leasing a car for your business, or if you have questions about your business tax deduction for using your car, you need to consult an experienced CPA tax accountant

Bess Kane, CPA
bess@besskanecpa.com

January, 2019