Deductions: Mileage & Auto
Updated: Sep 18, 2021
How can you eke out each cent of tax deduction possible? Let’s talk cars.
There’s a lot of confusion here about what the IRS allows as a deduction. Fuel? Car maintenance? But then also mileage? What if I also use this car to pick up the kids from school or take a summer road trip? According to the IRS, "If you use your car only for business purposes, you may deduct its entire cost of ownership and operation (subject to limits discussed later). However, if you use the car for both business and personal purposes, you may deduct only the cost of its business use.”
There are two main methods to auto deductions for a business vehicle: actual expenses vs standard deduction. You can take one but not both, and you have to use it consistently. No flip-flopping between methods. Actual expenses are simply what you spent on the car: fuel, regular (not life-extending) maintenance, and any other normal and reasonable auto expense in the ordinary course of business. The standard deduction, on the other hand, is a generous deduction per business mile driven, which tends to be simpler and more advantageous for the business owner.
IRS Standard Deduction 2020: $0.575/mile
IRS Standard Deduction 2021: $0.56/mile
Other important vehicle questions include
- Can the business purchase my car for me?
- Can I make my car payments from my business account?
- My car used to be personal but now I use it mostly for business. How does that change things?
- Should I pay for my fuel with my business credit card?
- Can I buy my personal car as the business?
- What about depreciation?
- If I purchase a vehicle this year, can I take accelerated depreciation on it?
If you have any of these questions, it’s time to think about an advisory relationship with a qualified CPA, someone who can strategize and knowingly guide you through long-term business decisions.