Job Related Vehicle Expenses
If you want to take a deduction for the business use of your vehicle, you must decide whether to deduct your actual expenses or use the standard mileage rate. The standard mileage is easier to calculate and, if the IRS questions the deduction, only requires that you provide a written, detailed log of the miles driven. When deducting actual expenses, gathering the paperwork to substantiate the expenses requires more effort, but deducting the actual expenses on the return may be more beneficial in certain cases. Your Jackson Hewitt tax preparer can help you determine which method is most advantageous for you.
Using the Actual Expenses Method
Certain vehicle-related amounts you spend can be used to determine your actual expenses. Vehicle expenses include:
- Registration and license plate fees
- Parking fees and tolls
- Garage rent
- Lease payments
- Repairs and maintenance (including tires)
- Gasoline and oil
- Car washes
*The maximum depreciation deduction allowed may be limited due to the IRS passenger automobile rules.
Using the Standard Mileage Rate Method
If you elect to use the standard mileage deduction, you may deduct 57.5 cents for business purposes and job searching (in a related field). If you move to a new home because of a job change, the mileage rate while moving is 23 cents per mile (these miles are deducted on Form 3903, Moving Expenses, if you meet the moving deduction requirements).
Generally, you can use the standard mileage rate if you are not reimbursed and if your reimbursement is less than the amount calculated using the standard mileage rate.
You must choose the standard mileage rate or actual expense method the first year you use the vehicle for business purposes. If you choose the standard mileage rate, you can switch to the actual expenses method in a later year. If you use the standard mileage rate for the tax year, you cannot deduct any of your actual vehicle expenses for that year, other than parking, tolls, car rental fees if not reimbursed by your employer, and the business portion of any personal property taxes (if based on the vehicle's value). You must elect to use the standard mileage method the first year the vehicle is available for use in your business. In later years, you can choose to switch methods from standard mileage rate to actual expenses but not from actual expenses to standard mileage rate. If you switch to actual expenses method in a later year, but before your vehicle is fully depreciated, you will have to estimate the remaining useful life of the vehicle and use straight-line depreciation. If you use the standard mileage rate for he tax year, you can't deduct any of your actual vehicle expenses for that year, other than parking, tolls, car rental fees, and the business portion of any personal property taxes. If you use the standard mileage rate method for a vehicle you lease, you must use it for the entire lease period.The non-business portion of personal property taxes are deducted on Schedule A, Itemized Deductions.
You cannot claim the standard mileage rate in the following instances:
- You use five or more vehicles for business at the same time.
- Your employer provides you with a vehicle. In this instance, you might be able to deduct the actual expenses of operating that vehicle for business purposes. The amount you can deduct depends on the amount that your employer included in your income and the business and personal miles you drove during the year.
- You use the vehicle for hire, (such as a taxi)
- You claimed depreciation under any method other than straight-line, a special depreciation allowance, or any section 179 deduction in a prior year.
You can deduct any additional costs you had for hauling tools or instruments (such as the rental of a trailer you tow with your vehicle). You cannot deduct fines you paid for traffic violations, any amount that is eligible for reimbursement from your employer or, if you are an employee, interest paid on a vehicle loan (this interest is treated as personal interest).
If the vehicle was used only partly for business, expenses must be allocated between personal and business use. You will usually use a percentage based on miles driven for business purposes during the year over total number of miles driven during the year.
Not all commuting miles are treated the same for tax purposes and they may not be considered to be for business purposes. Your costs of driving a vehicle between your home and your main or regular place of work are personal commuting expenses and are not deductible, no matter how far your home is from your regular place of work and regardless whether you worked during the commuting trip. For example, if you make business calls on your cell phone while driving or you have a business associate riding with you and you discuss business on the way to work, this does not change the regular commute from a personal expense to a business expense. Additionally, if you have a business advertisement on your car or if you haul tools or instruments in your car while commuting to and from work, the regular commute is still considered a personal expense.
Although regular commuting to and from work is not deductible, commuting miles may count as business use if your home is your office, if you are working out of a temporary location, or if you work in two or more different places during the day.
- If you have a qualifying home office for your business, the round-trips between your office and your client's place of business.
- You have no regular office and you do not have an office in your home. In this case, the location of your first business contact is considered your office. Transportation expenses between your home and this first contact are nondeductible commuting expenses. Transportation expenses between your last business contact and your home are also nondeductible commuting expenses. Although you cannot deduct the costs of these trips, you can deduct the costs of going from one client or customer to another.
- You regularly work in an office in the city where you live. Your employer sends you to a one-week training session at a different office in the same city. You travel directly from your home to the training location and return each day. You can deduct the cost of your daily round-trip transportation between your home and the training location.
- You do not have a regular place of work but you ordinarily work in the metropolitan area where you live. You can deduct your daily transportation costs between your home and a temporary work site if it is outside that metropolitan area.
- You work at two places in one day. Whether or not you work for the same employer, you can deduct your expense of getting from one workplace to the other. However, if for some personal reason you do not go directly from one location to the other, you cannot deduct more than the amount it would have cost to go directly from the first location to the second.
Fees you pay to park a vehicle at work or tolls paid to get to work are nondeductible commuting expenses. However, business-related parking fees and tolls are deductible (for example, when visiting a customer, traveling to a temporary work location, attending a seminar, or when looking for a job in a related field) whether you take the standard mileage method or actual expenses method.
Contact your neighborhood Jackson Hewitt office for more information or assistance. Use our Office Locator or call 1-800-234-1040 to find the Jackson Hewitt location most convenient to you.