If you drive a personal vehicle for business, you have two options for deducting your vehicle expenses. You can use the standard mileage rate, or you can use the actual expense method.
Which is better? As with most things when it comes to taxes, it depends. Let's dive into using the standard mileage rate vs. actual vehicle expenses.
With the standard mileage rate, you take a mileage deduction for a specified number of cents for every business mile you drive. The IRS sets the standard mileage rate each year. To figure out your deduction, multiply your business miles by the applicable standard mileage rate.
The standard mileage rate requires you keep track of how many miles you drive for business and the total miles you drive. You also need the date of the trip, your business destination and business purpose. Remember to capture this information in a timely fashion.
If you choose the standard mileage rate, you cannot deduct actual car operating expenses. That means you can't deduct maintenance and repairs, gasoline and its taxes, oil, insurance, and vehicle registration fees. The standard mileage rate includes all these items, as well as depreciation.
Yes but only if you used the standard mileage rate for the first year your vehicle was in service. After that, you can calculate both methods and use whichever gives you a larger deduction. If you use the actual expense method the first year, you must use it for the life of the vehicle.
The standard mileage rate covers a variety of car-related expenses. Cost factors include the price of gasoline, wear-and-tear, oil, maintenance, repairs and more. The IRS sets this rate every year.
Pros of using the standard mileage rate:
Cons of using the standard mileage rate:
As a rule, you'll be better off using the standard mileage rate if you drive a smaller car, particularly if you drive many business miles. You're likely to benefit from using the standard mileage rate if you drive an old or inexpensive vehicle.
Why? Because you get the same fixed deduction rate no matter how much the car is worth. Because the standard mileage rate factors in depreciation, an inexpensive car might benefit more from it than an expensive vehicle.
Pros of using actual vehicle expenses method:
Cons of using actual vehicle expenses method:
The actual expense method will likely provide a larger deduction if you drive a larger more expensive car or an SUV or Minivan. The fewer business miles you drive, the better off you'll be with the actual expense method.
The only way to know for sure which method is best for you is to keep careful track of your costs the first year you use your car for business. When you do your taxes, run the numbers to determine if your deduction will be larger using the standard mileage rate or actual expense method.
You can only make this comparison and select the method to use the first year you use your car for business. After that, your ability to choose which practice is subject to restrictions.
Also, if you don't use the standard mileage rate in the first year, you are forever foreclosed from using that method in future years. If you use the standard mileage rate the first year, you can switch to the actual expense method in a later year. Then, you can switch back and forth between the two approaches after that, subject to certain restrictions.
Instead of using the standard mileage rate, you can deduct the actual cost of using your car for business, plus depreciation. This method requires much more record keeping, but it can result in a larger deduction. If you use this method, you must keep careful track of all the costs you incur for your car during the year, including:
If you're not sure about standard mileage rate vs. actual vehicle expenses, it's a good idea to use the standard mileage rate the first year you use the car for business. Choosing this route leaves all your options open for later years.
Unfortunately, this rule does not apply to leased cars. If you lease your car and you use the standard mileage rate for the first year, you must use it for the entire rest of the lease period.