Tax Deductions for Car and Truck Expenses

Line 9 on Schedule C

Car and truck expenses are one of the most common deductions for people who are paid as a contractor. It is also one that can get you in trouble if you get audited. There are two ways to deduct car and truck expenses and you have to pick one.

***NO MATTER WHICH WAY YOU CHOOSE TO DEDUCT YOUR CAR OR TRUCK EXPENSES, YOU MUST KEEP TRACK OF YOUR MILES IN A MILEAGE LOG. YOUR MILEAGE LOG CAN BE AS SIMPLE AS A CALENDAR THAT YOU WRITE YOUR BUSINESS MILES IN OR THERE ARE MILEAGE TRACKING APPS YOU CAN USE***

I cannot emphasize how important having a mileage log and receipts is. If you get audited, you will also need some proof of the mileage on your vehicle. A receipt from an oil change at the beginning and end of the year works for this. Make sure your car model and odometer mileage are on the receipt. The IRS will take away your deduction without a log and proof of mileage.


Using Actual Expenses

The first way is to deduct the actual expenses. You must use your actual expenses as a deduction if you used more five or more vehicles in your business. If you lease your vehicle you cannot use actual expenses if you used the standard mileage deduction in a prior year. To deduct your actual vehicle expenses add up how much money you spent on gas, oil, maintenance, insurance, license plates, repairs and any other vehicle related expenses (make sure you keep all of your receipts) and then put the business portion on line 9. How do you know what the business portion is? You use your miles to figure out what your business portion is.

Calculating Your Business Miles

In Part IV of Schedule-C there is a place to enter your vehicle miles and answer a few questions about your vehicle. Line 43 is just the date you started using you vehicle to earn money. Line 44 is why you must keep track of your miles. Section (a) is for your business miles. Section (b) is for your commuting miles and Section (c) is for other miles. Add up the miles in your mileage log that you were driving for your job and put the total in section (a).

Your commuting miles are all the miles you drove to and from work and “other” miles would be any other miles you drove such as to the store or out to dinner. The difference between commuting miles and other miles can get confusing so the best thing to do is write down the number of miles on your vehicle at the beginning of the year and again at the end of the year. Use these two numbers to figure out how many miles you drove during the year:

25,000(end of year miles) – 15,000(beginning of year miles) = 10,000 total miles

When you know your total miles for the year, add up your business miles from your mileage log. If you used a phone app get the total from your app. Write that number on the business miles line. Subtract your business miles from your total miles and write that number on the commuting miles line.

10,000 total miles – 5,000 business miles = 5,000 commuting miles.

To calculate the business portion, divide your business miles by your total miles:

Business miles 5,000 / total miles 10,000 = 50% business portion.

To calculate your vehicle deduction, multiply your total vehicle expenses by your business portion. In this example you would use 50%:

Total vehicle expenses $5,000 x .50 = $2,500 deduction.

After you do this calculation with your expenses and mileage write the number 9. In this example, $2,500 goes on Schedule C, line 9.

Using The Standard Mileage Deduction

There are a couple of rules that restrict using the standard mileage deduction:

  1. You can use the standard mileage method if you own the vehicle and used the standard mileage deduction for the first year you placed the vehicle in service. Placing the vehicle in service does not mean when you bought it. Placing in service means when you started using the vehicle to earn money.
  2. If your vehicle is leased, you must use the standard mileage deduction for the entire term of the lease. If you have a three year lease, you have to use the standard mileage deduction for all three years. You can’t change to actual expenses in year 2 or 3.

To take the standard mileage deduction, multiply your business miles by the standard mileage rate. (Calculate your business miles for the same way you do for the actual vehicle expense deduction.) For 2016 the standard mileage rate was 54 cents per mile. For 2017 the standard mileage rate is 53.5 cents per mile.

If you have 5,000 business miles in 2017 your deduction would be: 5,000 x .535 = $2,675. Your standard mileage deduction for 5,000 miles in 2016 would be 5,000 x .54 = $2,700. After you calculate your standard mileage deduction, just enter the amount on line 9 of Schedule C.

Which Method is Better?

You must keep a mileage log for both methods. To use your actual expenses for the deduction requires you to keep all of your receipts. All fuel purchases, oil changes, and any other maintenance. This can be a lot to keep track of. However, if you get audited and are missing some receipts, the IRS will reduce your tax deduction.

The standard mileage deduction is almost always higher than actual expenses. Its hard to spend more than .50 cents a mile on car expenses. You don’t need to keep all your receipts to use the standard mileage deduction.

You could have some circumstances that make using actual expenses better but I think the standard mileage deduction is the way to go.-



Nathan

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