Note: The information contained in this blog post applies for the 2023 tax year.
The IRS allows mileage expenses to be deducted from your return in certain instances. Whether you’re a small business owner looking to save on taxes, or a freelance professional trying to accurately bill clients, it is important that you have in-depth knowledge about what is an allowable mileage or vehicle expense and the requirements for tracking and substantiating these expenses.
How to Deduct Vehicle Expenses:
There are two methods for deducting vehicle expenses on your tax return.
The standard mileage rate allows a fixed deduction amount for each mile driven. The data tracking under this method may be limited to a mileage tracking log, but it may result in missed deductions if the actual method would have provided a greater tax benefit.
2023 deduction rates for standard mileage:
· Business Purposes: 65.5 cents per mile
· Medical Purposes: 22 cents per mile
· Charitable Purposes: 14 cents per mile
The second method is the actual expense method. To use the actual expense method, you must determine what it actually costs to operate the car for the portion of the overall use of the car that's business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles. You must also track all miles driven via a tracking log.
If you want to be able to use either method, you must use the standard mileage rate in the first year the vehicle is placed in service. If you use the actual method in the first year, you may not claim the standard mileage rate in any future years for that vehicle.
Other car expenses for parking fees and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses.
Can I Deduct Miles That Are Used for Business Purpose?
Only the portion of the vehicle that is used for business purposes may be deductible, commuting miles between your home and normal workplace are not deductible miles.
You must have a mileage log to substantiate the portion of the vehicle that is used for business purposes. Click here to download an editable mileage expense workbook from our client guides.
Using this log will allow you or your CPA to allocate expenses between deductible business expenses and non-deductible personal expenses based on the portion of business miles to total miles driven.
Can I Deduct Car Advertising Expenses?
When using your vehicle as an advertisement for your business, it does not necessarily change what mileage can be claimed on your tax return. You can, however, deduct the cost of having the advertising placed on the vehicle.
Are There any Apps for Mileage Tracking? There are a number of apps you can use for mileage tracking. We recommend using TripLog.
This post may not contain a complete analysis of the tax issues discussed herein and does not represent official conclusions or advice regarding the matter.