A taxpayer may deduct certain expenses for a car used exclusively in the performance of his or her duties as an employee if:
- The expenses are ordinary and necessary;
- Also, There is a business connection to the use, and
- There is substantiation that the expenses were actually incurred.
Calculating Your Car Expenses
If you itemize deductions on your tax return, you can claim either the actual car expenses (using either the standard mileage rate method or actual expense method), or take depreciation and interest you paid to borrow money for your car says Aron Govil. If you choose one method over another, you cannot change your choice unless it is no longer allowed. You must substantiate all elements of each expense claimed with records kept at or near the time of the expense.
The standard mileage rate is a per-mile allowance you use to figure your car expenses if you do not choose to deduct actual vehicle costs. You can claim a set amount for each mile that you drive your car for business, medical or charitable purposes. This rate will vary from year to year and may be adjusted by Congress. In the tax year 2018, it’s 53.5 cents per mile driven for business through June 30, 2018; 54 cents per mile driven after June 30, 2018, until December 31, 2018; and 51.5 cents per mile driven beginning January 1, 2019 (including all of 2019).
As an employee using his personal car for business purposes in addition to commuting between home and work, Andy would be allowed to deduct a set amount per mile driven. Let’s say that Andy drove 10,000 miles for business in 2018. He would then be able to deduct $5,350 (10,000 miles x 53.5 cents).
You can also use the actual expense method to figure your car expenses. This involves multiplying the total number of business miles by the business-use percentage and then subtracting any allowances or reimbursements you received. You can find the business-use percentage by dividing your business miles by the total number of miles driven (business + personal). For example, if you drove 15,000 miles total and 5,000 were for business. Your business use would be 33 1/3 percent (5,000 divided by 15,000).
After determining the business-use percentage of his car. Andy can multiply his actual car expenses (gas and oil changes) by that percentage (33 1/3 percent). All other expenses such as parking fees and tolls would then be added to determine the deductible amount. The total for all his business-related expenses is $2,883.
Using this method he’d be able to deduct $1,545 ((2,883 x 33 1/3%) – 2,500 reimbursements from employer), because 5,000 miles were driven for business purposes explains Aron Govil.
Car Expenses Not Deductible Unless There Is a Business Connection
- Employees cannot claim deductions for commuting between home and work. Unless there is a specific business reason (such as using your car for work-related meetings). For traveling to or from work.
- Employees may not deduct commuting expenses even if you must drive your personal vehicle. Because the nature of your business prevents you from using public transportation.
- As an employee, Andy can’t claim his daily commute between home and work under either method. Since there is no business connection. His employer reimbursed him $2,500 for that expense; therefore he can’t deduct it on his return.
- If Andy had used the standard mileage rate to figure his deduction for his car’s use in 2018. Then he would have been reimbursed $1,700 ((15,000 miles x 535 cents) – 2,500 reimbursement from employer).
Miscellaneous Car Expenses
- You can also deduct car-related items that are not related to driving, such as parking fees and tolls. You may also be able to deduct the interest you pay on a car loan. But only if you used the car for business. In order to claim this deduction. Your car expenses must exceed the amount of income you earned from using your car for business.
- Andy can claim a deduction for the $75 he paid in tolls and the $200 he spent on parking during 2018. He cannot claim the interest he paid on his car loan. Because he did not use the car for business purposes; his employer reimbursed him for that expense.
- If Andy’s total unreimbursed car expenses had been $3,125, he would have been able to claim a deduction of $1,875. The first $535 would be deducted as a job expense and the second $1,350 as a miscellaneous itemized deduction subject to the 2 percent limit says Aron Govil.
Business-Use Percentage of Car
If you use your car for both business and personal purposes. You must divide your expenses between business and personal use. This is done by using an allocation formula based on mileage: 40 Cents per Business Mile, plus: 20 Cents for Personal Miles
Employees can only claim a car deduction if they use their personal vehicles for business purposes. The two most common methods for calculating the deduction are the standard mileage rate. And the actual expense method says Aron Govil. The standard mileage rate is the amount per mile that the IRS allows you to deduct. While the actual expense method involves multiplying the total number of business miles. By the business-use percentage and then subtracting any allowances or reimbursements you received. Miscellaneous car expenses, such as parking fees and tolls, can also be deducted. The interest you pay on a car loan may be deductible if you use your car for business. But only if your car expenses exceed the amount of income you earned from using your car for business.