Automobile Expenses for Business

Aaron Steensma - Thursday, January 25, 2018

The rules for automobile expenses in a business can be quite simple, or very complicated, depending on each taxpayer’s circumstances. The term “Business Use” means just that. If you are using the vehicle for business purposes then you have a tax deduction. It is important to note that the term “business use” does not include commuting to and from your place of employment.

There are several methods you can use to obtain automobile tax deductions. The two main methods are: Mileage Method and Actual Cost Method. Both methods require the taxpayer to prove the business use. The best way to prove this is to keep written records of your business use. This written record can be a paper log or an electronic log.

By far, the simplest method is the mileage method. The taxpayer records his/her mileage for business use each day. The IRS issues a mileage rate each year -- this year's current mileage rate is .545 cents per mile. The taxpayer is allowed to deduct their annual miles multiplied by the rate. A big advantage for using the mileage method is that the taxpayer does not need to keep receipts for gas, oil, maintenance, etc. These items are all included in the mileage rate. The mileage method can be used for leased vehicles as well. But, if you have more than four leased vehicles you cannot use this particular method.

The other most commonly used method is the actual cost method. This method is more complicated and generally implemented when a company purchases a vehicle.