The IRS Standard Mileage Rate vs. Actual Car Expenses

If you own your own business, you likely have vehicle expenses. A major potential deduction as a business expense may be the use of your vehicle.

There are two acceptable methods by which the IRS allows one to deduct vehicle expenses - the standard mileage rate or the actual expenses. This article will discuss how to take advantage of either option.

By the way, the IRS does define a "car" for the purpose of a qualifying deduction. A car is any four-wheeled vehicle (including a truck or van), under 6,000 pounds, that is made primarily for use on public streets. An ambulance, hearse or bus does not qualify.

Standard Mileage Rate

If you choose to deduct the standard mileage rate, you opt to accrue a certain percentage on the dollar for every mile driven for business purposes.

For 2010, the standard mileage rate is 50 cents per business mile driven. Starting January 2011, the mileage rate will be bumped up to 51 cents per mile.

If you choose to deduct the standard mileage rate for a car you own, you must do so in the first year the car is available for use in your business. In later years, you have the option of choosing either the standard mileage rate or actual expenses. For a leased vehicle, if you use the standard mileage rate you must continue to use this method over the life of the lease.

The standard mileage rate does not apply to cars used for hire, such as a taxi cab service, or for vehicles used in fleet operations (5 or more cars used in the same business).

In addition to using the standard mileage rate, you can deduct any business-related parking fees and tolls.

The IRS provides specific information as to what miles may be counted as qualified business mileage.

The following are deductible business miles - Driving from one workplace to another in the course of your business or profession, visiting clients or customers, going to a business meeting away from your regular workplace, or driving from your home to a temporary workplace (a location that you work at for one year or less).

For example, a self-employed hardwood floor installer drives each day to the supplier, where he obtains the job details and supplies. From there he travels to one job in order to install the floor, and then travels to another location to bid on a potential job. From there, he drives home.

He is allowed to deduct the miles between the first job and the potential second job. He cannot deduct the miles driven to the supplier, nor can he deduct the ride home.

Actual Car Expenses

In lieu of deducting the business miles, you may opt to deduct the actual car expenses as used for business purposes.

Actual car expenses include the following:

- Gas, oil, insurance and general car repairs

- Licenses and registration fees

- Lease payments (not ownership costs)

- Depreciation

- Garage rent

- Tires

- Tolls and parking fees

Some of the above expenses are used concurrently for both business and personal usage. If this is the case, you must decide what portion of the vehicle expenses are used for business reasons, and then allocate this percentage among the shared expenses.

For more information, see IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses.

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