Jennifer Moore
Items that could be deductible
Commuting from your home to the office is not deductible. But once you reach work, any drives to other company locations, or for company purposes (like the bank), can be deductible.
When it comes to showing the IRS exactly what expenses you’ve incurred, you have two options: taking a standard mileage percentage, or counting up actual expenses.
Actual expense
If your vehicle constitutes most of your business– like if you work for a ridesharing app, or if you travel to the source and sell products– then you might want to use this method.
Keep all your receipts, and keep track of how much you spent on things like:
- Gas
- Oil
- Repairs
- Tires
- Insurance
- Lease payments
- Registration costs
- Fees (tolls, garage space rental, parking)
- Depreciation
For tax purposes, you’ll need to keep track of and estimate how much the car is used for business vs. personal purposes. So if the car is only used for ridesharing, then 100% of the costs associated with maintaining that car are tax deductible. If you use the car to drop your kids off at school, then you’ll need to use a mileage log or other tracker. Once you have determined that you use the car for business purposes 75% of the time, you may only itemize 75% of the costs for the car. So if you spent $5,000 in gas this year because you generally drive over 700 miles a week, 75% of which were business miles, then you can claim $3,750 in gas.
Standard mileage
This is a simpler method to determine what vehicle expenses are tax deductible. If you use the car for work sometimes, keep a log of the miles you drove for purely work purposes. There are apps that can help, or you can keep a notebook in your glove box that you update with your odometer reading before and after your business drive. Or if you know that you drive to the bank, 10 miles away, every Thursday, you can calculate that way.
When you have the number of miles you’ve driven this year for business purposes, you can apply the standard mileage rate for your taxes. For the first six months of 2022, the per-mile IRS rate is 58.5 cents per mile. For the latter half of 2022, the mileage rate is 62.5 cents per mile.
This method is simpler, but if you suffered a major repair cost, this method won’t take that into account.
If you work for a company that requires you to drive, talk with them about how they reimburse mileage. If you are already reimbursed for mileage from the company, you probably won’t be able to claim those miles on your taxes. But if the company doesn’t reimburse you, you can claim those miles.
Deductible auto expenses as it applies to business owners
Business owners can write off vehicles and expenses as business expenses, and the same rules for employees apply to business owners.
Some business owners may have a brick-and-mortar space for operations, but some business owners may run their businesses from home. If you have a home office space, then you can count the mileage required to go from your home office to meet with a client, an attorney, source supplies, go to the bank, or travel to other office locations.
Again, you must log and determine how much the car was used for business purposes or personal purposes.
- Making a work call while driving to pick up your son from soccer practice does not count as business miles.
- Running an errand during the work day does not count for business miles
- Trips from home to the office only count if your main office is at home, and you are driving to a secondary location.
Other ways you could save on taxes
Donate your old car
If your car is on its last legs, or if you don’t think you’ll be able to sell the car for a fair price, consider donating it to charity. You can claim a deduction on the value of the car.
Look into going electric
Some cars can be converted, you can get an electric conversion kit installed. Make sure your mechanic thinks that your car is a good candidate, first. Converting your car can save on fuel costs, and your state may have tax incentives for the process.
Buy electric
The IRS wants to encourage consumers to buy electric vehicles, so if you’re in the market for one, you may receive up to $7,500 in tax credit from your purchase. There are limits, though, so do your homework.
So, what's the consensus?
If your company reimburses you for mileage or your vehicle expenses, then you can’t deduct those same miles or expenses from your taxes. But if you own your own business, are self-employed, work as a contractor, or if your company doesn’t reimburse, then you can claim those vehicle expenses on your taxes.
The key is to keep good records. Stay organized and keep your receipts. Every little bit helps. For other ways to save money, check out the RateWorks insights blog for financial tips as well as auto refinancing information!
