Last Updated: Feb 13, 2018
Taking the mileage deduction when you use your car for business can yield big savings on your taxes. Find out what the 2017 IRS mileage rate is and what the IRS’s rules are for taking this deduction.
If you use a car in your business, you could be entitled to some substantial tax deductions. The amount and the type of deductions you can claim depend on a number of factors.
The IRS offers two options for deducting expenses for using a vehicle in your small business. You can deduct the actual expenses you incur using the vehicle in your business or, provided you meet certain criteria, deduct the standard mileage rate for each mile you drive your car for business.
The easier of the two methods, if you qualify, is to take the standard mileage rate deduction. With the standard mileage rate, you simply have to keep a log showing the business mileage driven (with notes to show the business purpose), and then multiply the total miles driven by the standard mileage rate for the year. If you take the standard mileage rate, you may also deduct the cost of tolls and parking fees.
Each year the IRS adjusts the standard mileage rate based on the fluctuating costs of operating a vehicle (including the cost of fuel). The IRS mileage rate for 2017 is 53.5 cents per mile. If you drive just 1500 miles a year for your business, that amounts to a deduction of $802.50 at the 53.5 cents a mile rate. If you drive 10,000 miles a year for business, it would add up to a $5,350 deduction.
Although many years the mileage rate goes up from the previous year, 2017’s IRS mileage rate actually went down half a cent from 2016. And, in years when fuel or other costs fluctuate widely, there may be one rate for a half of the year and a different rate for the other half of the year (as happened in 2011 when the rate was 51 cents/mile from January-June and 55 cents/mile from July-December).
In order to use the standard mileage rate method to calculate your business use of vehicle deduction, you must own or lease the vehicle for which you are making the deduction. The standard mileage rate cannot be used if you:
When you use the mileage deduction, you cannot deduct actual expenses like gas, oil, insurance, taxes, vehicle maintenance, and other expenses. The IRS considers those expenses to be covered in the mileage allowance. However, you can still deduct parking fees and tolls you incur while using your car or truck for business as well as the business percentage of any auto loan interest and personal property taxes you pay on your car.
The IRS expects you to keep good records of the miles you travel for business in your vehicle. Although you don’t need to log your odometer reading for each trip, you do need to record your vehicle odometer reading at the beginning of the year and the end of the year. Then, each time you use your car or truck to travel for your business, you should record how many miles you traveled, where you went, and the purpose of the trip. You can keep up with this information the old fashioned way – in a mileage notebook you keep in your car – or you can use one of the many smartphone apps, like Everlance (free), Hurdlr (free), Mileage Expense Log (IOS only – free or $3.99 for Pro), MileIQ ($5.99/month or $59.99 annually), or TripLog (free to $25/year). The important thing is that you have documented records for each time you use your vehicle for business.
Businesses that use the actual expense method of operating their vehicles can deduct depreciation on the vehicle and costs such as lease payments, registration fees, insurance, garage rental, gas, repairs, tune-ups, and tires. Deductions are prorated to the business use of the car, and there are limitations on depreciation and deductibility of lease payments on vehicles above certain fairmarket values. Recordkeeping and figuring out depreciation allowances can be fairly complex using the actual expense method. In some cases using the actual expense method can give a small business a bigger deduction than the standard mileage rate, but you may want to check with your accountant. You can find more information about deducting the actual expenses for the business use of your vehicle in this IRS publication.
Before you commit to using the mileage deduction, you may want to spend some time calculating which method is most beneficial for you. For some people, using the actual expense method will yield bigger savings. Just remember that once you’ve used the actual expense method for a particular vehicle, you are required to continue using that method to calculate vehicle expense deductions in future tax years.
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