What Car Expenses Can I Deduct On My Taxes?

According to the IRS, if you use your car in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage. And commuting to your regular workplace is not considered business travel.

What car expenses can you deduct?

The IRS gives you two options to deduct the business use of your car:

  1. Deduct car expenses using the standard mileage rate. The standard business mileage rate in 2011 changed mid-year.  The business mileage rate from January 1 – June 30, 2011 is 51 cents per mile.  The business mileage rate from July 1 – December 30, 2011 is 55.5 cents per mile.  This changes from year to year (and sometimes mid-year like 2011 and 2008) so be sure to check the IRS mileage rates.  On top of the standard mileage rate, you can deduct tolls and parking.
  2. Deduct car expenses using actual expenses.   Actual vehicle expenses include lease payments, gas, oil, depreciation, license and registration fees, insurance, repairs, tolls, and parking.

Lease payments can serve as one of your biggest tax deductions.  In my opinion, if you can deduct business use lease payments, that is the only time that leasing makes good financial sense.  Here’s more to help you decide whether to buy or lease a car.

And in order to qualify for either option you must also keep detailed records of your business use of the car in a mileage log showing the date, business purposes, and number of miles driven.  Keep in mind the second option is considerably more difficult to document.  And just because it is more challenging does not necessarily mean you’ll end up with a larger deduction.  Before deciding, try to estimate your annual savings under both options or check with a tax professional.

For more details on deducting car expenses refer to the IRS website.