If you use a personal vehicle for business purposes, you can take deductions for your car. This potentially includes the cost of gasoline and other vehicle-related expenses that add up throughout the year. Think: oil changes, registration fees, and even insurance costs. But can you deduct gasoline and mileage on your taxes? Here’s what you should know.
These days, trips to the gas station are met with frustration. With the average price per gallon reaching $4.116, drivers across the nation are having to cut back on weekly expenses. That is why it’s also important for drivers to find ways to save on car-related tax deductions. Fortunately, you can deduct the cost of gasoline with one of the two deduction methods available. Use the actual expense method to claim the cost of gas, oil, repairs, and other itemized auto expenses this year.
With that said, it’s important to note the limitations of the actual expense method for gas deductions. If you use this method to claim costs for the first year you use your vehicle for business, you must continue to use the same method for the life of the car. You can only switch between the actual expense method and standard mileage rate if you use the standard mileage method at the beginning. Therefore, a good rule of thumb is to always use the standard mileage rate for the first year you use your car for business. From there, you can calculate the value of your vehicle deduction using the method of your choice.
In short, the answer is no. The type of deduction method you choose will determine whether or not you can claim gasoline or mileage on your taxes, not both. If you use the actual expense method, which adds up all costs related to the business use of your vehicle, then claiming mileage is not an option. In this instance, you keep tabs on all actual car expenses that accrue throughout the year, including car insurance and repairs and maintenance.
By comparison, the standard mileage rate lets you deduct a per-cent rate for each business mile you drive. For 2022, you can claim:
This deduction choice is the better option if you are in a profession that requires extensive time on the road. For example, sales professionals, HVAC technicians, and construction workers can track mileage to earn back a portion of annual car-related costs.
You can claim car-related deductions assuming that you’re self-employed, a freelancer, or a small business owner. If you receive a 1099-NEC form from your clients or customers, you can easily claim a mileage deduction each year. However, this is not the case for W2 employees. For this reason, it’s important that your employer reimburses you for work-related driving. Many times, employers will create an accountable plan for mileage reimbursement. The best part — mileage reimbursement is tax-free, if and only if proper documentation is kept.
Understanding the basic guidelines for claiming vehicle-related expenses is the first step in making the most out of your tax deduction in 2022. If you’re using the standard mileage rate, it’s crucial to keep an accurate log of business miles to qualify for this type of write-off. Keep in mind, this does not include your commute to and from work or any business calls made or received in the car. The IRS clearly outlines what warrants taxable mileage and what does not.
With MileIQ, professionals can automatically track mileage between client meetings, site visits, or any other work-related tasks with ease. Our one-swipe classification also allows drivers to keep track of both business and personal trips, which means you’ll have a clear indication of how much you use your vehicle for work. If you’re ready to start tracking mileage for tax deduction, download the MileIQ app or sign up today!