If you drive your vehicle for certain purposes, you can deduct the associated costs of using the vehicle. The amount you can write off depends on the purpose for the driving and other factors. Here are 10 things to know about deducting your driving costs.
1. There’s a choice for figuring deductions
In most cases, you can choose to deduct driving costs based on your actual out-of-pocket expenses or a standard mileage allowance. You can choose whichever method gives you the greater deduction. However, in the case of deducting business-related driving costs, the choice of using the mileage allowance must be made in the first year you use your car. If you deduct your actual costs in that first year, then you cannot switch to the standard mileage allowance later on.
2. The business mileage allowance can be used by employees and self-employed individuals
If you drive your vehicle for business purposes, such as visiting customers or clients, you can deduct your costs. The IRS-set standard mileage allowance for business driving is 55.5¢ per mile in 2012 (56.5¢ per mile in 2013).
Other travel treated as deductible business driving includes:
3. The medical and moving mileage allowance
Instead of deducting the actual costs of driving to a doctor or pharmacy, or relocating for a job, you can compute your write-off using an IRS-set standard mileage rate for these purposes. The IRS-set standard mileage allowance for driving for medical or moving purposes is 23¢ per mile in 2012 (24¢ per mile in 2013).
4. The mileage rate for charitable driving
If you use your vehicle to delivery meals to the homebound or for any other charitable purpose as service to a recognized charity, you can deduct your driving using a fixed mileage rate. You cannot deduct your driving costs for simply being neighborly, such as looking in on elderly residents.
The rate for charitable driving is 14¢ per mile. The rate is set by the Tax Code and does not change annually.
5. The same rates apply for all vehicles
Whether you drive a car, heavy SUV, van, or small truck, the standard mileage allowance is the same.
6. The same rates apply for vehicles that are owned or leased
You can use a standard mileage allowance regardless of how the car is titled. Thus, if you lease the vehicle and drive it for business purposes, you can rely on the standard mileage allowance to figure your deduction.
7. You can deduct parking and tolls in addition to the standard mileage allowance
If you opt to use the standard mileage allowance to figure your deductible costs, also add on the cost of parking and tolls.
8. Reduce your basis by the deemed depreciation allowance
If you use the standard mileage allowance for business driving, you must reduce the basis of your vehicle by an allowance for depreciation, called “deemed depreciation.” This is a cents-per-mile rate fixed annually by the IRS. For 2012 and 2013, the deemed depreciation rate is 23¢ per mile. Thus, if you drive your car 10,000 for business in 2012, you must reduce the basis of the car (for purposes of determining gain or loss on the sale of the vehicle) by $2,300 (10,000 miles ´ 23¢ per mile).
9. The standard mileage allowance does not eliminate substantiation requirements
The standard mileage allowance is used to figure the cost of driving. It does not mean you can forget about keeping track of your mileage as you would if you deducted your actual driving costs. This requires you to note the date, destination, purpose, and mileage for each tax-deductible ride in your vehicle.
10. The cost of commuting is not deductible
Driving to and from work (commuting) is a nondeductible personal expense. This is so even if the trip is lengthy.
If you deduct the cost of a home office, then any business travel from and to home is tax deductible; there is no commuting in this case.
In the government’s 2009 fiscal year ending September 30, 2009, federal revenues were $2.105 trillion. Of this amount, 26% came from personal income taxes and 25% from Social Security, Medicare, and unemployment taxes. Only 4% came from corporate income taxes and 5% from excise, gift, estate, and other miscellaneous taxes. The greatest share—40%—came from borrowing.
Source: Instructions to 2011 Form 1040View all factoids