When deducting business vehicles you can deduct the actual expenses or use the standard mileage rate. Actual expenses are just that, the expenses associated with operating the vehicle. You calculate your tax deduction as the sum of depreciation, repairs, maintenance, tires, gasoline, oil, insurance, license and registration fees.
The standard mileage rate is probably the only area of the entire US tax code that actually makes the taxpayer's life easier instead of harder. You simply take the number of business miles driven and multiply that number by an IRS determined amount. The result is your tax deduction. Each year the IRS hires an outside consulting firm to survey all the costs associated with operating a vehicle and boil them down into a standard mileage rate. The current and preceding standard mileage rates for business use are as follows:
If you want to use the standard mileage rate instead of actual expenses you must use it in the first year the vehicle is placed in service. You can switch to actual expenses later if you account for the depreciation component of the mileage rate (a calculation and explanation beyond the scope here). However, you cannot switch from actual expenses to the standard mileage rate.
It pays to sit down with your CPA when you buy a new vehicle and discuss the strategy you are going to take toward tax deductions. Usually high mileage taxpayers are better off with the standard mileage rate where trucks and heavier vehicles can benefit from much higher initial first year depreciation deductions. Watch for a more thorough treatment of vehicle expenses in the March newsletter.
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