How to Claim Car Expenses

Claim car expenses if you're self-employed or an employee.

If you're a self-employed business owner, you can claim your car expenses and reap the benefits awarded by the Internal Revenue Service for all the miles you drive for business. Whether you follow the IRS standard mileage rate or travel the more complicated route and claim actual car expenses, you must follow IRS procedures honestly and accurately so that you don't find yourself in the middle of a nasty tax audit.

Things You'll Need

• Mileage log
• Actual expense receipts
• Ownership document
• Form 1040
• Schedule C
• Tax file

Instructions

1. Figure out if you qualify to claim car expenses on your tax return. If you routinely or even occasionally drive your car from one business location to another, meet with clients or customers, or attend a meeting or seminar outside your regular workplace, then you can claim car expenses.

2. Determine whether to use the standard mileage rate or the actual expenses method to claim your car expenses. Keep your actual car expense receipts and a mileage log, and compare the two at the end of the year to see which one yields a higher deduction. As of 2010, the standard mileage rate was 50 cents. Actual expenses---except for tolls and parking fees---can't be claimed when using the standard mileage rate.

3. Keep accurate mileage records if you claim car expenses under the standard mileage rate. Have a small notebook in your car's glove box or clipped to your visor. Make it a regular habit to log the date, the miles traveled, your business destination and the purpose of your trip. Add up your total miles at the end of the year.

4. Maintain detailed mileage records and keep all receipts if you claim actual car expenses, such as for car repairs, depreciation, lease payments, registration fees, insurance, licenses, gas, tolls, parking fees and other related car expenses. Be prepared to show the IRS the percentage of miles you drive for personal and business use.

5. Complete form 1040, schedule C---Profit or Loss from Business. Enter your total car expenses in part II, line 9, and fill in questions about the car you use for business in Part IV, lines 43 through 47b. Attach schedule C to form 1040, and file it with the IRS by April 15. Keep all logs and receipts in a file for at least seven years.

Tips & Warnings

• See IRS Publication 463---Travel, Entertainment, Gift and Car Expenses---to look up the standard mileage rate for the current tax year.

• Car expenses can be claimed if you drive somewhere and stay overnight on business.

• Be sure to have a copy of your title---or other ownership document---to show as evidence, regardless of what method you use.

• Keep a copy of the document that shows what you originally paid for the car (if you're claiming depreciation).

• Form 1040, schedule C-EZ---Net Profit from Business---can also be used if you have $5,000 or less in business expenses.

• Employees who use a company car can claim expenses not reimbursed by their employer on IRS forms 2106 or 2106-EZ.

• The standard mileage rate must be used if your car is leased.

• Car expenses can't be claimed for your daily commute from home to your job.

• The standard mileage rate can't be used if you drive a taxi or use a fleet of cars in your business.

• Traffic violation fines and capital expenses cannot be claimed.

References

• IRS: Business Use of Car
• IRS: Car and Truck Expenses Deduction Reminders

Resources

• Smart Money: Writing Off Your Car Expenses
• IRS: Publication 463, Actual Car Expenses
• Inc.: Deducting Car Expenses