Vehicle Expenses Simplified; Title and Depreciation also Explained

This is a brief overview of how vehicle expenses work, including : Title or Ownership of the vehicle, and Depreciation

If you drive a vehicle for business, there are two options for deducting your vehicle expenses on your tax return (1) the standard mileage rate or (2) actual expenses. Which is better? it depends.

Ownership (or Title) to the vehicle does not matter for your tax deduction.  IRC§162 allows a deduction for business use of a vehicle.   Business use is the use of a vehicle for Business Purposes

Also, note each vehicle that you use for business can only use one method - you cannot switch from one method to the other.

The Standard Mileage Rate Method

 With the standard mileage rate, you take a deduction per business mile driven.  IRS sets the standard mileage rate annually.  To calculate the your deduction multiply your business miles by the IRS mileage rate.

To use this method you would keep track of how many miles you drive for business. You need to substantiate the business use with things like date, destination and purpose.

 The Actual Expense Method

 You can deduct the actual cost of using your car for business.  This requires more record keeping, you must keep track of your costs such as

gas, oil, repair, maintenance, fees, parking, registration, tires, insurance, washing, towing charges, etc..

These costs are apportioned for your business versus your personal use.

The Formula for deducting Actual Expenses is as follows:

Business Miles / Total Miles = Equals Business Percentage Used  X  Actual Expenses = Deduction

Depreciation is also deductible.  It is the Cost of the vehicle divided by 5 years, and is apportioned

 Which Method Is Best for You?

How much it costs per mile to drive a car in the United States. on average, the cost is 39.7 cents per mile to drive a car in 2014. The standard mileage rate deduction for 2014 is 56 cents per mile.

The average cost of driving a vehicle is generally less than the actual costs.

As a rule, most people get a greater tax deduction using the standard mileage rate.