Know Your Auto (Expenses):  Actual Versus Standard Mileage Rate Methods

Post By Scott Reddersen 

If you use your car for business purposes as a self-employed taxpayer or as an employee, you generally can deduct related expenses.  You have two methods from which to choose: the standard mileage rate, or actual car expenses incurred.

If you own your car and wish to use the standard mileage rate, you must utilize this method in the first year the car is available for use in the business.  In subsequent years, you can choose to use either the standard mileage rate or the actual expense method.  If you wish to use the standard mileage rate for a leased automobile, you must use it for the entirety of the lease. In order to calculate your deduction, you simply take the number of business miles multiplied by the standard mileage rate ($0.54/mile in 2016, $0.535 in 2017) to figure your deductible amount.  For example, if you drove 1,000 business miles during 2016, the deductible amount would be $540.

Actual expenses include depreciation (subject to certain limitations)/lease payments, gas, insurance, repairs, and registration fees, among others.  You must allocate the expenses based on your business and personal use of the automobile, which is generally measured by miles driven for each purpose.  A taxpayer can substantiate vehicle mileage by maintaining a diary/trip log or similar record, and documentary evidence for other actual expenses including receipts, paid bills, etc.  One important item to note is that commuting miles are considered personal usage when making this allocation.  For example, if you had $5,000 in actual expenses, and drove 1,000 business miles, 7,000 personal miles, and 2,000 commuting miles during 2016, your deduction would be limited to $500 (10% business mileage multiplied by $5,000).

These are nuances involved with each method, and there are many factors that should be considered when deciding which method to use.

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