If you’ve always deducted your business vehicle expenses in the past, read on. With the recent changes in the tax code, not everyone can still claim the deduction. Some taxpayers can, but some cannot.
In a nutshell, only a few types of taxpayers can now qualify to deduct auto expenses from their taxes.
Business Owners and Self-Employed Taxpayers
Individuals who either own a business or are self-employed and use their vehicle for business purposes can deduct vehicle expenses on their returns. If the taxpayer uses the vehicle for both personal and business purposes, the expenses must be split. The deduction is based only on the portion of mileage used for business purposes.
There are two methods for figuring car expenses:
- Using actual expenses
- These include:
- Depreciation
- Lease payments
- Gas and oil
- Tires
- Repairs and tune-ups
- Insurance
- Registration fees
- Using the standard mileage rate
- Taxpayers who want to use the standard mileage rate for a car they own must choose to use this method in the first year the car is available for use in their business.
- Taxpayers who want to use the standard mileage rate for a car they lease must use it for the entire lease period.
- The standard mileage rate for 2018 is 54.5 cents per mile. For 2019, it‘s 58 cents.
There are recordkeeping requirements for both methods.
Employees
Employees who use their car for work can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A. Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car. This is for tax years after December 2017. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions subject to the 2 percent floor.
However, certain taxpayers may still deduct unreimbursed employee travel expenses; this includes Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials.
For more information, check out IRS Publication 535, Business Expenses.