Business transportation tax deduction methods: Standard mileage rate v. Actual expenses

Odometer The Standard Mileage Rate

The standard mileage rate is currently set at 54 cents per mile. If you log 10,000 business-related miles in transportation costs, that is a $5,400 deduction.

Sound easy enough? Well, there are a few caveats.

If you want to use the standard mileage rate, you must use it in the first year that you use the car for business. You may later switch to actual expenses but you cannot switch from actual expenses to the standard mileage rate. If you want to use the standard mileage rate for a leased car, you must use it for the entirety of the lease.

The IRS holds several other exceptions:

  • The use of five or more cars at the same time (as in fleet operations),
  • Claiming a depreciation deduction for the car using any method other than straight line, for example, MACRS,
  • Claiming a section 179 deduction on the car,
  • Claiming the special depreciation allowance on the car,
  • Claiming actual car expenses after 1997 for a car you leased, or
  • For a rural mail carrier who receives a qualified reimbursement.

The Actual Expenses Method

As we mentioned before, the actual expense method covers the following:

  • Depreciation
  • Licenses
  • Gas
  • Oil
  • Tolls
  • Lease payments
  • Insurance
  • Garage rent
  • Parking fees
  • Registration
  • Repairs
  • Tires

In order to deduct the above, detailed records and receipts of all must be kept and filed. The car must be used 50% of the time for business. All of the above may not be taken together, but rules apply for the correct combinations of the expenses. In other words, if lease payments are taken, depreciation may not also be taken.

Photo by Qfamily 

Photo by byzantiumbooks 

Do you have the support you need to manage your small business bookkeeping? Schedule a 30-minute appointment to speak with a local small business adviser.