The Internal Revenue Service allows you to deduct expenses if you use your car for work, but you’ll need to separate business use from personal use when figuring out your deduction. Don’t expect the IRS to believe that 100 percent of the miles you drove in your personal car last year were for work. Even if they were, it’s extremely unlikely that each mile would be deductible, based on IRS rules.
Commuting costs generally can’t be deducted. Your daily drive to and from work, therefore, can’t be used to decrease your taxable income. However, if you’re assigned to a temporary work location outside of your metro area, the costs associated with that trip may be deductible. If you work out of your home but have to go to a separate location to fulfill your duties, you can deduct those costs. Finally, if you work two jobs, the commuting costs between your regular job and your second job can be deducted -- but not the cost to travel from that second job back to your home.
Expenses associated with client visits are generally deductible. For example, the cost to park in the parking garage in your office building won’t be deductible, but the parking garage at your customer’s office would qualify. Gas and tolls on your way to a client office can be deducted, but not those on the way to your own office.
If you use your car as a part of a car pool, that doesn’t change most rules on deductions. You still can’t deduct the miles you travel in your daily commute. If the passengers pay you, the tax treatment depends on what the money is for. Money designed to reimburse you for expenses, such as gas and tolls, aren’t factored into your taxes. If you run a car pool for profit, however, those funds must be included when you calculate your annual income.
You can deduct expenses via two methods: standard mileage rate or actual car expenses. The IRS allows you to deduct a set amount per mile driven, which changes annually. Alternatively, you can total your actual expenses for gas, maintenance, tolls, insurance, lease payments and other fees, and deduct the percentage of those expenses that matches the percentage of miles you drove for business. In either case, you’ll need to document which miles were driven for business purposes and which were for personal use. The actual expense method is generally a better option for newer cars. But if you don’t use the standard mileage rate the first year you use a car for business, you can’t use that method thereafter.
Compare to Standard Deduction
To deduct expenses related to using your vehicle for work, you have to itemize your deductions. This means the total amount of deductions on your return must exceed the standard deduction or it doesn't make financial sense. For the 2014 tax year, that standard deduction was $6,200 for single taxpayers and married taxpayers filing separately, $12,400 for married couples filing a joint return and $9,100 for heads of household. Moreover, these expenses are deductible only to the extent they exceed 2 percent of your adjusted gross income.
- IRS.gov: Deducting Business Expenses
- IRS.gov: Publication 463 (2013), Travel, Entertainment, Gift, and Car Expenses
- Entrepreneur: How to Deduct Your Vehicle Expenses
- Nolo.com: Tax Deductions for Your Small Business
- Nolo.com: Using the Standard Mileage Rate to Deduct Business Driving Expenses
- IRS.gov: Publication 529 -- Main Content
- Photo Credit David Buffington/Blend Images/Getty Images
Tax Deductions for Work-Related Expenses
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