Key Takeaways
- If you have a full-time job but use your vehicle for work duties (driving to meetings, picking up supplies, etc.), your reimbursements from your employer are likely to be tax-free for those driving costs.
- If you’re self-employed, you typically can deduct expenses for the miles you drive or for the actual automobile costs for business purposes.
- You can calculate your driving deduction by adding up your actual expenses or by multiplying the miles you drive by the IRS’s standard mileage rate.
- The per-mile rate for 2024 is 67 cents per mile. The rate is up from 65.5 cents per mile for 2023.
Deducting auto expenses
You can make car expenses work for you. For many Americans, work and personal time have become increasingly intertwined over the years. While this certainly has its drawbacks, it can be a major benefit come tax time for those who drive as part of their work. Knowing all of the auto-related deductions you’re entitled to can ensure that your automobile is working as hard for you as you are for your business.
The first thing an auto-using taxpayer needs to do is determine how they are using their car, said Julian Block, a Larchmont, New York–based tax attorney who is the author of "Tax Deductible Travel and Moving Expenses: How to Take Advantage of Every Tax Break the Law Allows." One type of use includes personal use of your vehicle and the other includes business use. People often do a little of both with the same vehicle. "If you use your car exclusively in your business, you can typically deduct all of the car expenses," said IRS representative Sara Eguren. If you use your car for both business and personal purposes, you'll need to divide your expenses based on your mileage for business and your mileage for personal use."
First up: If you are self-employed, but occasionally use your personal auto for your business, you're likely qualified for a business expense deduction.
“If you use your car for anything business related, other than simply commuting from home to work, there might be deductions you can take," said Andrew Schrage, co-owner of the Chicago-based personal-finance site MoneyCrashers.com. "Don’t miss out."
More miles, more money
Mileage is a big deduction, Schrage noted, adding, "Although it may not seem like much, it adds up."
If you drive from your office to a job-related destination—a sales meeting, to get office supplies, or to the airport—those miles are typically deductible.
For 2024, the mileage rate is 67 cents per mile. This amount is up from 65.5 cents per mile for 2023. For more information, refer to IRS Publication 463, Travel, Gift, and Car Expenses. For a list of current-year and prior-year mileage rates see "Standard Mileage Rates." There's a separate table for those who lease their vehicles. If you are self-employed, you may either deduct your actual expenses or use the optional standard mileage rate to calculate deductions provided you used the standard mileage rate in first year that you used the auto for business. Otherwise, you will need to use the actual expense method.
“If you’re using your vehicle, say, 75 percent of your time of use for business, that same percentage of all of your qualified auto expenses are deductible," says Block.
"If it’s a car used exclusively for business, it’s 100 percent. If you’re claiming actual expenses, things like gas, oil, repairs, insurance, registration fees, lease payments, depreciation, bridge and tunnel tolls, and parking can all be deducted." Just make sure to keep a detailed log and all receipts, he advises, and keep track of your yearly mileage and then deduct the percentage used exclusively for work. One smart tip, says Block: “If you have a gas guzzler, you’re likely better off taking the actual deductions.”
TurboTax Tip:
If you’re self-employed and claim a home office, all the driving you do from your home to clients’ offices is typically deductible. If you don’t have an office in the home, the first and last trips of the day are typically considered non-deductible commuting.
Keeping good records
Illinois CPA Neil Johnson recommends you keep meticulous records throughout the year to ensure you are prepared when tax time arrives. The more information the better, says Johnson, who has adopted the nickname given him by one of his clients and is now known as "the Tax Dude." "When deducting your auto expenses, the most important thing is keeping detailed records of your all of your miles," he said. "Include what clients you were seeing, the purpose of the trip, the job being worked on. You could enter it into a simple Excel spreadsheet each day or use an app on your phone and soon it’ll become second nature.”
If you are self-employed and claim a dedicated home office—a space set aside exclusively for business—the driving you do from your home to clients’ offices is typically deductible.
"If you don’t have a home office," said Block, "your first and last trips of the day are typically considered non-deductible commuting." In other words, if you are a freelancer who regularly drives to different clients' offices in a day, the first trip out from home and the last drive back are typically considered commuting and are not usually deductible. However, the distance driven between each client can be deducted.
Cruise control
From Julian Block, author of "Tax Deductible Travel and Moving Expenses: How to Take Advantage of Every Tax Break the Law Allows," and Andrew Schrage, co-owner of MoneyCrashers.com, come a few cool, little-known auto-related expenses you may deduct—and one that you may not deduct.
- If you own rental property, you may claim the mileage driven to and from your property when you go to maintain or check on it, says Julian Block.
- Transportation expenses—including parking and tolls—for volunteer work at qualifying charities (including nonprofit board meetings) are considered charitable donations and may be included as an itemized deduction on your income taxes, according to Andrew Schrage. The rate per mile, however, is lower: 14 cents per mile.
- If you’re using your car for business, even car-washing and polishing expenses are deductible when claiming actual expenses rather than the standard mileage rate, Block says.
- Block says that if you incur medical expenses of over 7.5 percent of your adjusted gross income (AGI) you may deduct health-related travel expenses. This includes travel to the medical provider and parking as well.
- Fines for traffic tickets are never deductible, even if you receive them doing work-related driving, says Block.
With TurboTax Live Business, get unlimited expert help while you do your taxes, or let a tax expert file completely for you, start to finish. Our small business tax experts are always up to date with the latest tax laws and will ensure you get every credit and deduction possible, so you can put more money back into your business. Small business owners get access to unlimited, year-round advice and answers at no extra cost and a 100% Accurate, Expert Approved guarantee.
