There are several opportunities to claim car or truck expense as a deduction on your income tax return.  Most people are familiar with the standard mileage rates, which for the 2009 tax year were 55 cents per mile for business, 24 cents for medical or moving purposes, and 14 cents per mile for charitable purposes.   In many cases, you may be able to claim a bigger car write-off than just what the standard mileage rates provide.

Actual Cost

The actual cost method allows you to record most of your expenses for operating your vehicle, including insurance, repairs and maintenance, licensing, gas and oil, accessories, parking, toll road fees, and more.  To the extent you use the vehicle for business you can also consider depreciation or lease expenses.  To use this method, you must keep records of all of these costs and of the miles you drive.  The miles are used to determine the percentage that applies to each use.

For example, let’s suppose your vehicle operating expenses total $4,000, and your depreciation is $3,000.  Let’s also assume you drove a total of 10,000 miles for the year, broken down as follows:  Commuting to work 2,000 miles (20%), business use after arriving at work 3,000 miles (30%), charitable use 1,000 miles (10%), medical use 500 miles (5%), and all other (personal) use 3,500 miles (35%).  

Commuting to work is considered personal, and you wouldn’t get a tax deduction for those miles.  Business use after arriving at work would be the mileage percentage of 30% times $7,000 (total of both vehicle operating expenses and depreciation) or $2,100.  Note this is higher than the standard mileage rate in this example, which would produce a deduction of 3,000 miles times 55 cents per mile, or $1,650. 

Charitable use would be the mileage percentage in our example of 10% times $4,000 (depreciation is not allowed for charitable use) or $400.  This is again higher than the standard mileage rate, which would produce a deduction of 1,000 miles times 14 cents per mile or $140.  Medical use would be the mileage percentage of 5% times $4,000 (again, depreciation is not allowed) or $200, compared with the standard mileage rate of 500 miles times 24 cents per mile or $120.

Be sure to consider when choosing the actual cost or standard mileage method that you get to choose for the first year you use each vehicle.  After that, you continue with the same method for as long as you continue to use that vehicle.  Sometimes that can make a difference in the method you choose!  Be sure to get professional help if you need it to make the best choice for you.

Additional Allowed Expenses

Of course, there are also cases where the standard mileage rate produces the higher deduction.  This is most often true for those who drive more than 15,000 miles per year in an older car with low depreciation.

If you do take the standard mileage rate, there are a few expenses you can claim over and above the mileage rate.  These include car registration, parking, and toll road fees, so be sure to keep records of those!

The IRS Mileage Rate Is Higher Than Your Reimbursement

It is always best for you if you get a reimbursement for the full IRS rate for the miles you drive.  Some people get reimbursed a lower rate; say 20 cents per mile, for their business use of their vehicle.  If this is the case for you, you are allowed to take a tax deduction for the difference.  You do this by claiming the deduction for the full expense of operating your vehicle, and then subtracting the total amount you were reimbursed.  The difference is the deduction you are receiving, and it can be sizeable!

Planning Note for 2010

The IRS has announced lower mileage reimbursement rates for the 2010 tax year:  50 cents per mile for business, and 16.5 cents per mile for medical and moving purposes.  The charitable rate is set directly by Congress and has not changed in many years from the current 14 cents per mile rate.

Important Note!