Bookkeeping Tips: Business Auto Expenses!

Amazinggracebookkeeping
Mar 21
4 min read

Actual Auto Expenses or Standard Mileage Rate?

If you own a business, chances are you use your car. According to the IRS, that is a legitimate deductible expense that you can write off for your taxes. As long as the vehicle is for business use and not personal use. In which case you can divide those expenses by the miles you have driven for each purpose.

Overall, the IRS gives the business owner two different methods of calculating his or her auto expenses. For example, you can choose to use actual expenses or the standard mileage rate. In this post, we will discuss these two methods so that you can decide which method will work best for you!

Actual Auto Expenses: time to tally up those receipts!

Owning a vehicle comes with upkeeping it and those expenses can vary. As well as be costly for a business owner. Thankfully the IRS gives a list of legitimate auto expenses that a business owner can deduct, and chances are you have those expenses! See the list of expenses below from IRS Publication 334,

“Actual car expenses include the costs of the following items.

Depreciation

Lease payments

Registration

Garage rent

Licenses

Repairs

Gas

Oil

Tires

Insurance

Parking fees

Tolls .”

Just keep in mind, if you use your vehicle for both business and personal use you have to divide those expenses (PUB 334).

With this method, you will need to take the time to track each individual expense and tally them up. You can do that by tallying up receipts or using bank / credit card statements. However, if this method seems overwhelming and time consuming you can choose the standard mileage rate instead.

*But to be safe, if you are eligible to take either method, calculate both and then decide which one will benefit you the most! It may take some time, but it could save you money in taxes!

Standard Mileage Rate: business miles multiplied by the mileage rate set by the IRS!

The IRS gives the option of using a standard mileage rate when figuring this deduction. This option is the simplest of the two since you do not have to figure out how much each individual auto expense was for the year.

You just need to calculate the number of miles driven for business use and multiply that by the mileage rate. As it states in IRS Publication 334, “You may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. The business standard mileage rate for 2024 is 67 cents a mile.”

*Note for 2025, the mileage rate is 70 cents a mile.

For example, let’s say you drove a total of 12,000 miles in the year 2024. Of that 12,000 you drove 10,000 miles for business and 2,000 miles for personal use. You would take the mileage rate of .67 and time that by the 10,000 miles for business use. Thus, $6,700 dollars will be your auto business deduction on the taxes.

.67*10,000 =$6,700

However, if you do choose to use the standard mileage you must use it in the first year that you are using your vehicle for business. After the first year you can choose either the standard mileage rate or the actual expense method.

There is an exception, if you are leasing your vehicle and you choose to use the standard mileage rate you have to keep using that option for the entire lease period of the car. You can’t switch back and forth.

*Though, in any case when you choose to use the standard mileage rate you can still include parking and tolls as a separate expense. Just make sure the parking is not for the place of business you work at because that is not deductible.

In addition, there are some various instances when you CAN’T use the standard mileage rate. As it states, “You cannot use the standard mileage rate if you:

1. Operate five or more cars at the same time;

2. Claimed a depreciation deduction using any method other than straight line, for example, ACRS or MACRS;

3. Claimed a section 179 deduction on the car;

4. Claimed the special depreciation allowance on the car;

5. Claimed actual car expenses for a car you leased; or

6. Are a rural mail carrier who received a qualified reimbursement.”

Overall, just keep in mind these special rules and the standard mileage rate may be the better option for you! It is also recommended to keep a “mileage log” just in case you were ever audited by the IRS.

Now that we have discussed each method, it will just depend which method will work best for you! Look at them both and see which one will give you a higher deduction amount and use that. Just keep in mind the IRS rules set for each.

If you need help from a bookkeeper to tally up those expenses, visit amazinggracebookkeeping.com.

Happy Business Driving!