Deducting Vehicle Expenses for Your Business

By Alan L. Olsen, CPA, MBA (tax)
Managing Partner
Greenstein, Rogoff, Olsen and Co., LLP

Business traveling costs add up fast. If you own a vehicle that is primarily for business use, there are tax deductions available to you. You can choose to deduct the standard mileage rate or actual expenses. If you are unsure of what option is best for you, consider the following:

Standard Mileage Rate

For 2012, the standard mileage rate is 55.5 cents per mile. If you own a vehicle, you can use this deduction beginning with the first year that you place your vehicle in service. If you are leasing your vehicle, and use this deduction, you must use it for the entire period that you lease the vehicle. This means that you cannot switch between the standard mileage deduction and the actual expenses deduction[1].

With the standard rate, you can deduct miles driven as well as toll expenses and parking fees. You cannot deduct depreciation expenses, fees for leasing and renting or vehicle operating expenses[1].

Actual Expenses

The Standard Mileage Rate does not require as much record keeping as the actual expense deduction, but this deduction may be more beneficial if you keep a detailed record of your expenses.

The actual expense deduction allows you to deduct fuel costs as well as insurance, oil, maintenance, license plates, and other operating costs. You cannot take this deduction if you deduct the standard mileage rate. If your business uses at least 5 vehicles or if you use your vehicle for transporting purposes, you only have the option of taking this deduction and not the standard mileage deduction[1].

Also, deductions are available to you for purchasing vehicles for business purposes. However, before hoping for a deduction after purchasing the latest sports car or a cargo truck, realize that there are some requirements to qualify. The weight of the vehicle purchased must be over 6000 pounds, but not over 14,000 pounds gross weight. The vehicle must seat no more than 9 people and must not have a cargo area of more than 6 feet in length not attached to passenger area. There is also a $25,000 yearly limit for this deduction[2].

Decide in advance which deductions you want to use so that you will have proper records when it’s time to file your tax return.

Sources:
[1] 1040 Schedule C Line 9 Instructions. http://www.irs.gov/pub/irs-pdf/i1040sc.pdf
[2] Form 4562 Instructions page 13. IRS. Web. August 2011. http://www.irs.gov/pub/irs-pdf/i4562.pdf

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