Updated for Tax Year 2014
Your car might save you a bundle come April 15, especially if you drive as part of your work. Knowing all of the auto-related deductions can ensure that your automobile is working as hard for you as you are for your paycheck.
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 boon come tax time for those who must 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 paycheck.
The first thing an auto-using taxpayer needs to do is determine which of the two types of write-offs to use, 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 entails personal use of your vehicle -- using travel deductions -- and the other includes business use. People often do a little of both. "If you use your car exclusively in your business, you can deduct car expenses," said IRS representative Sara Eguren. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage."
First up: If you have a full-time job, but occasionally use your personal auto for professional duties, you're probably qualified for write-offs. “If you use your car for anything work-related, other than simply commuting from home to work, there are deductions you can take," said Andrew Schrage, co-owner of the Chicago-based personal-finance site MoneyCrashers.com. "Don’t miss out."
"If you use your car for anything work-related, other than simply commuting from home to work, there are deductions you can take. Don’t miss out," says Andrew Schrage, co-owner of MoneyCrashers.com.
More miles, more money
Mileage is the biggest deduction, Schrage noted, adding, "Although it may not seem like much, it adds up."
If you drive from your usual work site to another job-related destination -- a sales meeting, to get office supplies, or to the airport -- those miles may be deducted. "If you have been temporarily reassigned to another work location that is farther from home, you can deduct the extra distance,” he said. If your employer reimburses you for mileage, however, you cannot deduct these expenses on your taxes.
The per-mile rate for 2014 is 56 cents for business miles driven. For updated information, refer to IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses (go to IRS.gov or call 1-800-TAX-FORM). 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 exact expenses or use the optional standard mileage rate to calculate deductions.
“If you’re using your vehicle, say, 75 percent of your time of use for business, that same percentage of all of your 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 written off." Just make sure to keep a detailed log and all receipts, he advises, or 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 better off taking the actual deductions.”
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 track of your business miles," he said. "Include what clients you were seeing, the purpose of the trip, the job being worked on. You could put it into a simple Excel spreadsheet daily 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 -- all the driving you do from your home to clients’ offices is deductible.
"If you don’t write off a home office," said Block, "your first and last trips of the day are 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 not deductible. However, the distance driven between each client can be written off.
Also worth noting: you may deduct miles driven to odd jobs such as babysitting, pet care or lawn work.
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, author of "Tax Deductible Travel and Moving Expenses: How to Take Advantage of Every Tax Break the Law Allows."
- Transportation expenses -- including parking and tolls -- for volunteer work (including nonprofit board meetings) are considered charitable donations and may be deducted from your income taxes, according to Andrew Schrage, co-owner of MoneyCrashers.com. 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.
- If you've been looking for a new job, there are some search-related driving deductions you may take, Schrage says. If you move to a new home because of a new job, and the new job is at least a 50-mile drive from your old job, you may deduct the miles driven while moving, he notes.
- Block says that if you incur medical expenses of over 10 percent of your adjusted gross income for the year, you may deduct health-related travel expenses. This includes travel to the provider and parking as well. There is a temporary exemption to the 10 percent threshold from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If you or your spouse is 65 years or older or turned 65 during the tax year you are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.
- If you’re in a car accident that isn’t your fault, and the other driver’s insurance doesn't fully reimburse you for the damage to or loss of your car, you may get a deduction for that unreimbursed amount as a casualty loss. This also applies if the car is repaired but is no longer worth as much as it had been because of its accident history, according to Schrage.
- Fines for traffic tickets are never deductible, even if you receive them doing work-related driving, says Block.
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