Vehicle Expenses – Standard Mileage Rate Deduction

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Automobiles

  • If you use your vehicle for business purposes, you may generally use one of the two following methods to compute deductible expenses:
    • Standard mileage rate
    • Actual car expenses
  • In this blog we are going to talk about the standard mileage rate

Multiple automobiles

  • If you have more than one automobile, you should pay 100% of the costs for the primary business vehicle that is titled to your Corporation/LLC directly from your business bank account or using business funds and use the actual car expense method
  • On the other hand, for the second automobile, if it is titled to you personally and not to your Corporation/LLC:
    • probably you will need to have in place an employer reimbursement accountable plan for your Corporation or LLC (see Publication 463 for requirements)
    • track miles and submit mileage reimbursement to the Corporation/LLC by December 31st
    • you should pay the expenses from your personal bank account

Standard mileage rate method

  • Instead of deducting the actual vehicle expenses, a taxpayer can use the standard mileage rate method
  • You can use this method as a substitute for the following actual expenses:
    • Depreciation
    • Lease payments
    • Maintenance and repairs
    • Gas and oil
    • Insurance
    • Vehicle registration fees
  • You must have records showing the below information, and actually these records must be kept regardless if you use the standard mileage rate method or the actual car expense method:
    • total miles driven throughout the year, regardless if the miles were for business purposes or not
    • the number of miles driven for business purposes
    • the business purpose of each business trip
  • The mere existence of a mileage log is not sufficient if the entries are too generalized or not supported by other corroborating evidence
  • In addition to the mileage records, you should keep substantiation for other deductible expenses, such as auto loan interest, personal property taxes, parking fees, and tolls, which are deductible based on the business use percentage along with the standard mileage rate
  • You can see here the rates for 2023: IRS issues standard mileage rates for 2023; business use increases 3 cents per mile | Internal Revenue Service

Standard mileage rate not allowed

  • You can not use the standard mileage rate method if you:
    • Use five or more automobiles at the same time for business, such as in a fleet operation
    • Claimed:
      • a depreciation deduction for the automobile using any method other than straight-line depreciation over its estimated useful life
      • a Section 179 deduction on the vehicle
      • a special depreciation allowance on the vehicle
      • actual expenses for an automobile that is leased
    • Have an employer-provided business auto and unreimbursed auto expenses

If you want to use the standard mileage rate, you must choose to use it in the first year the car is available for use in your business. Then, in later years, you can choose to use either the standard mileage rate or actual expenses.

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This material is for informational purposes only. It does not constitute tax, legal or accounting advice.