If You Use a Car for Your Business, These Expenses Are Tax-Deductible
Certain car expenses are deductible if the car is used for your business. Is gas tax deductible? We'll break down all of the rules.
Oct. 31 2022, Published 10:55 a.m. ET
With inflation and interest rates both on the rise, you'll want to keep as much of your paycheck as possible. Taking advantage of tax deductions helps Americans hold on to more of their income, but you might not be sure what car expenses are tax-deductible. Can you claim gas on your taxes for driving to work?
While you might be tempted to claim a tax deduction for the miles you drive to and from your place of employment, that isn't part of the U.S. tax code. Your everyday commute doesn’t count as a way to lower your taxable income. However, you can claim car expenses if you use the vehicle for your business. Keep reading for all the details.
Certain expenses are tax-deductible if the vehicle is used for your business — what about gas?
If you use your vehicle for work, you may be entitled to a tax deduction. The IRS vehicle tax deduction is either a standard mileage rate or the “actual expenses” of operating the car, but you can’t deduct both.
In order to claim a tax deduction for the use of your car, it must be used for business purposes such as trips required for work. You can claim full expenses if your car is only used for business. If your car is used half for business and half for personal purposes (or any other percentage combination), you'll have to do some math and figure out what to claim.
The standard mileage rate is what you may use to deduct eligible business travel related to your vehicle. In 2022, January through June used a rate of 58.5 cents per mile. That increased to 62.5 cents per mile for the second half of 2022.
As CNBC reported, IRS commissioner Chuck Rettig explained the increase: “The IRS is adjusting the standard mileage rates to better reflect the recent increase in fuel prices.”
High gas prices may influence whether a standard mileage deduction or actual expenses deduction is better for you.
The other option is the actual expenses method, which includes all costs related to the operation of a vehicle throughout the year. Those expenses can include the cost of gas, oil, lease payments, repairs, tires, insurance, registration fees, and licenses.
Neither method is automatically a larger deduction. It’s best to keep records of mileage and actual expenses so you can compare the potential tax deductions at the end of the year.
Is it worth claiming gas on taxes?
Whichever method you use to claim a deduction on your car, you need to keep detailed records. If claiming mileage, take a photo of your odometer on Jan. 1 and take note of the mileage so you can easily check the total annual miles. An app may also prove useful in mileage tracking.
Keeping records for the actual expenses method can be a bit more time-consuming compared to only recording miles, but it could yield a greater tax deduction. For example, if you incur a large vehicle repair such as a new transmission, that might push your actual expenses well above the standard mileage deduction.
Remember to use the percentage of time that your vehicle is used for business. If you only use it 50 percent of the time for business, multiply your total expenses by 0.50.
Someone who is an Armed Forces reservist, a qualified performing artist, or a fee-basis state or local government official will use Form 2106 to calculate car expense deductions.