How to Claim Mileage Deductions and Business Car Expenses

Taxes

Updated for tax year 2022

If you frequently drive your car for business purposes, you know how car expenses can quickly add up.

And it’s not just the cost of gas, which fortunately has gone down from its high a few years ago. Every time you drive your car, you use oil, weaken your brake pads, clog up your air filter and wear down your tires – the list goes on and on.

All of this wear and tear on your vehicle for business purposes ultimately requires more servicing, plus your car depreciates in value. You may even pay more in car insurance when you drive your car more miles.

Fortunately, there is a silver lining. When it comes time to file your taxes, your car expenses can also help lower your tax bill if you can deduct them as a business expense. Here’s how to make sure you get the deductions you deserve.

1. Understand the standard mileage rate vs. actual expenses

You can deduct your vehicle expenses in one of two ways. You can track all your car expenses, including gas, oil, repairs, insurance, and depreciation, and deduct the portion of your total car expenses that apply to business miles. Or you can deduct a flat rate for every business mile you drive, which is called the standard mileage deduction. The standard deduction for use of a car in 2022 is 58.5 cents for the first six months of 2022 (January – June) and 62.5 cents for the latter six months (July – December). In 2023, the standard mileage rate is 65.5 cents per mile for business miles. You may want to calculate mileage for taxes both ways to see which method gives you the biggest deduction.

You may not be able to use the standard mileage deduction for claiming mileage in all cases. For example, if you use actual expenses the first year you own a car, you must use actual expenses for as long as you own the car. If you use the standard mileage rate the first year, you can switch back and forth between actual expenses and the standard mileage rate in the following years.

Additionally, be aware that some depreciation deductions are limited by “luxury auto” rules.

2. Keep records of your deductible miles and total mileage

To take a deduction for business mileage, you must show that you kept records of business miles driven. This is easy to do with a small notebook you keep in your car or through an app, like Everlance, on your phone. You can also reconstruct miles driven from a logbook. No matter which method you choose, you will need to know your total miles driven for the year.

Remember, you can only count business mileage on taxes, not commuting miles. For example, when you drive to your regular office, don’t count those miles. But if you drive for business purposes such as visiting a client’s office, temporary work location or an office supply store, you can count those business drives towards the IRS mileage deduction.

3. Enter business mileage or actual car expenses with your business tax form

If you have a sole proprietorship, enter business mileage and other vehicle expense information with the Schedule C tax form for that business. If you have more than one business, or if you and your spouse are both a business owner, be sure to enter business mileage and expenses with the correct business.

4. Parking fees and tolls are also deductible

Keep track of any toll and parking receipts. You can deduct these expenses for business miles, in addition to other actual expenses or the standard mileage rate.

5. Let TaxAct do the hard work for you

The IRS requires you to answer several questions to determine if you qualify for a vehicle expense deduction and if you can use the standard mileage deduction.

For the actual expenses method, you need to calculate the amount of depreciation for your car each year. If you use TaxAct when filing your taxes you can simply answer a few questions and let the program determine if you qualify. The program also calculates your depreciation deduction for you as well as the actual expenses versus the standard mileage rate deduction. It will use the method that results in the best deduction amount for you.