What Auto Expenses Are Tax Deductible?
At the end of the road, repairs are a part of car ownership. And car expenses can be significant if you add them up throughout the year. Are car repairs tax deductible?
The simple answer is that it depends. Claiming deductions allows you to reduce your taxable income, which lowers your tax bill. In addition to deductions, there are credits that you may claim to write off a part of your tax bill. You can take advantage of deductions and credits to not only lower your tax liability but also increase your tax refund. Whereas you may want to reduce your tax exposure by claiming deductions and credits, it's key to do it correctly to avoid trouble with the IRS.
Are car repairs tax deductible?
You may be able to deduct auto expenses on your tax returns depending on how you use the car. If you’re self-employed, such as an Uber driver, the IRS allows you to deduct the cost of maintaining and operating your business vehicle.
The option to offset taxes with auto expense deductions is also available to a limited category of employees. Qualified performing artists, fee-based government officials, and armed forces reservists can claim car expense deductions.
How car expense tax deductions work
If you own or lease a car and use it for both personal and business purposes, you can only deduct the business portion of the car expense. You can claim car business deductions in one of two ways: as a standard mileage rate or actual expenses.
The IRS lists what qualifies as actual expenses. They include the costs of fueling the car and changing oil, replacing tires, insurance, garage rent, vehicle registration fees, and toll road charges.
The standard mileage method combines all of these and lets you deduct a set dollar amount for every business mile traveled. If you choose the standard mileage deduction method for a leased car, you must continue with it throughout the lease period, and for a car you own, you must start in the year you started using the car for business. The IRS changes the standard mileage deduction rate regularly. In recent years, the rate has ranged from $0.54 to 0.58 per mile.
The standard mileage rate versus actual expenses for car tax deductions
Which deduction method is best for you depends on the cost of maintaining your car. If your vehicle is economical to operate, the standard mileage rate could give you a bigger deduction, but if it's not, the actual expenses route may be better.
How to deduct auto expenses correctly
Proper recordkeeping is important for claiming tax deductions. Save every repair receipt and keep track of your mileage, noting if trips are taken for personal and business purposes.
Business trips range from traveling to see clients to driving to the store to pick up office supplies. If you’re opting for standard mileage deductions, keep in mind that trips between your home and office are deductible, because they're considered commuting. However, if you’re returning from a business trip and stop to buy groceries on your way back home, the drive from the store to your home is considered personal mileage and isn’t deductible.