If you’re self-employed, you almost certainly use your automobile in your business, whether it’s to meet with clients or get yourself to the next training location. This article explains the circumstances under which you can deduct automobile and other travel expenses and the best way to do so.
When can you deduct automobile expenses?
You can deduct automobile and other travel expenses if they qualify as legitimate expenses in your business. You’ll list all the expenses discussed here on Schedule C, Profit or Loss from Business, if you’re a sole proprietor. You may be able to use Schedule C-EZ instead, if your expenses total less than $2,500, you didn’t have a net loss for the year, and you don’t claim a home office deduction. You may need other forms as well, which I’ll refer you to as necessary.
You cannot deduct auto expenses for commuting. For example, if you do all your work at the site of one client, getting from your house to that site is classified as commuting. But if you have a home office or you rent office space, traveling from that office to a client’s site is a legitimate expense. Driving from one client site to another counts as well. You can also deduct other trips related to your business, such as driving to a seminar, to a computer store to pick up a new printer, or to the library to do research.
Deducting automobile mileage vs. actual expenses
You can deduct automobile expenses based either on the standard mileage rate or on your actual expenses. Unless you must use the actual-expense method (only if you’re using the car as a taxicab or you used more than one vehicle at the same time), you should use the standard mileage rate because it’s much, much simpler.
To use the standard mileage rate, track the number of business miles you drive. You must have evidence in writing: Maintaining a logbook is best, although you can prove mileage based on your appointment book. You’ll also need to know the total number of all miles driven for the year. Whatever method you use, multiply the number of business miles by the following:
- 32.5 for mileage driven between 1/1/99 and 3/31/99
- 31 for mileage driven between 4/1/99 and 12/31/99
Even though this seems a bit involved, it’s still simpler than the actual-expense method. If you deduct your expenses, you’ll have to keep receipts for gasoline, insurance, repairs, maintenance, and so on. You must also figure depreciation on the automobile, and because it’s listed property, you’ll need to keep special records. To figure depreciation, use Form 4562, Depreciation and Amortization.
Other travel expenses
You can also deduct business-related travel expenses such as airfare, lodging, and rental car expenses. For any such travel expense, you need to document the dates of the trip, the number of days spent on business, the destination, and the business purpose.
While traveling away from home on business overnight, you can deduct half of your expenses for meals, subject to certain limitations. Or, instead of tracking your actual expenses for meals, you can use the standard meal allowance, which is $30 a day for most areas of the U.S.
You need to track the cost of each separate expense, and you should keep receipts even though that isn’t an absolute requirement for certain expenses under $75. Note that a cancelled check doesn’t serve as evidence of anything unless you also have a bill from the person or business to whom you wrote the check.
Forms and publications
You can find the IRS forms and publications you need by using the search page at http://www.irs.ustreas.gov/forms_pubs/findfiles.html. Publication 463, Travel, Entertainment, Gift, and Car Expenses, addresses these types of expenses, discussing what you can deduct and the records you must keep for each expense.
If you have any doubts about your tax liability or what deductions you can claim, consult a tax professional. To comment on this article, please post a comment below or follow this link to write to Meredith.
Meredith Little has worn many hats under the broad term of freelance writer, including technical writer, documentation specialist, trainer, business analyst, photographer, and travel writer.