Are Motor Vehicle Running Costs Tax Deductible?
If you use your car for business, the Internal Revenue Service allows you to deduct this as an expense on your taxes. You have the option of deducting either the actual operating costs associated with the business use of your vehicle or taking a standard mileage deduction for each mile driven for business. If you keep good records, you can figure the deduction both ways to determine which method will result in a higher deduction.
Business Use of Car
If you use your car in your work and your employer doesn't reimburse you, you can deduct auto expenses or mileage as a business expense, in the Miscellaneous Deductions section of Schedule A, Itemized Deductions. If you're self-employed, you can deduct business use of your car as a business expense on Schedule C, Profit or Loss From Business. Business use includes driving you must do to conduct your business or your employer's business, such as calling on clients, traveling to a business meeting, or driving to the post office, bank or office supply store to conduct business. Business use does not include commuting from your home to your workplace.
Deducting Actual Expenses
If you only use your car for business purposes, and not for personal use, you can deduct all the costs associated with keeping the vehicle running, such as gasoline, oil changes, tires, insurance and licensing fees. If you use your car both in business and for personal use, you need to figure the percentage you use the car for business and deduct only that portion of the expenses from your taxes. Track the business miles you drove during the year and divide this by the total miles you drove for the year. This will give you the percentage you used your car for business. Add up all your operating expenses and multiply by your business use percentage to arrive at your deduction.
Each year the Internal Revenue Service assigns a standard mileage deduction to use in figuring your taxes. For example, in 2012 the standard mileage rate was 55 1/2 cents. Add up the total miles you drove for business during the year and multiply by the appropriate mileage rate to arrive at your deduction. You may add tolls and parking fees to your mileage rate deduction. The standard mileage rate eliminates the need to track all of the expenses associated with operating your car.
You must keep records to justify your vehicle deduction, whether you opt for deducting the standard mileage rate or actual operating expenses. Your record should show the date, the miles you drove and the purpose of the trip. If the trip combined business and personal use, you should indicate which portion of the trip was for business and which for other reasons. In addition, if you deduct your actual operating costs, hang on to every receipt for the purchase of gas, insurance, maintenance and other expenses.
Cynthia Myers is the author of numerous novels and her nonfiction work has appeared in publications ranging from "Historic Traveler" to "Texas Highways" to "Medical Practice Management." She has a degree in economics from Sam Houston State University.