The business use of your automobile is one of the expenses that the Internal Revenue Service allows you to deduct from your taxable income, as long as you itemize your deductions. The IRS offers two methods of calculating the amount of your deduction, and the deduction applies whether you are an employee or are self-employed.
Your deductible automobile expenses must be business-related. If you incur expenses mixing business and pleasure, you can only deduct the business portion. You can't deduct a cross-country trip to Disneyland, for example, simply because you stopped by to see a client on the way. Since commuting to work is not considered a business expense, you can't deduct it. You can, however, deduct the expense of commuting between jobs.
Standard Mileage Rate
The IRS standard business mileage rate for 2012 is 55.5 cents per mile, unchanged from 2011. The IRS re-evaluates this rate every six months and sometimes changes it in the middle of the year. Certain restrictions apply to the use of the standard mileage rate -- for example, you may not use the standard mileage rate if you operate a fleet of more than five cars, or if you have taken certain types of tax breaks related to the car such as the Modified Accelerated Cost Recovery System depreciation deduction or the Section 179 deduction.
Actual Expense Method
The actual expense method is an alternative to the standard mileage rate. The actual expense method covers your actual expenses for gasoline, oil, repairs, tires, insurance, registration fees, licenses and depreciation. Although the IRS doesn't require you to file documentation of your expenses with your tax return, you are required to keep this documentation, and you will need it if the IRS decides to audit you.
If you are employed, and your employer reimburses you for travel expenses that you document, you normally cannot deduct these expenses because they are your employer's expenses, not yours. If, however, the reimbursed amounts are included in your paycheck, and you are not required to prove these expenses to your employer, you may be able to deduct them. Otherwise, you may deduct only that portion of your expenses that you were not actually reimbursed for.
If you are self-employed, you must deduct business travel expenses on Schedule C of Form 1040 (Schedule F if you are a farmer). If you are an employee, you must use Schedule A, and you can only deduct expenses that exceed two percent of your adjusted gross income. If you are an employee, your expenses were partially reimbursed and you wish to deduct expenses that exceed your reimbursement, you must file Form 2106 along with Form 1040.
David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.