Writing off business use of your car

Writing off business use of your car can be worthwhile. According to US IRS regulations, you can deduct a number of business transportation and related expenses if you’re a sole proprietor. These deductions can include public transportation and the cost of driving and maintaining your vehicle.

Business and personal use

Most consultants use their vehicles for both business and personal use.

If this is the case, be sure to keep a record of your business and personal mileage. On the first day of the tax year, make note of your starting mileage. Keep a notebook in your car. When you drive for business purposes, mark the mileage of every business trip down in the notebook. On the last day of the tax year, make note of your mileage once more.

What is a business trip: ordinary and necessary transportation

According to US IRS regulations, when it comes time to tracking trips for write off purposes, business trips have to be ordinary and necessary trips.

Ordinary trips are "common and expected" in your field. Necessary trips are "helpful and appropriate" but don’t have to be "required."

If you’re an employee, note that there are strict regulations against claiming commutes to and from your place of employment. To make sure you’re keeping accurate records, review the IRS’s regulations.

Filing your taxes

When it comes time to file, most people have two choices:

  1. The standard mileage rate; or
  2. Actual car expenses.

Standard mileage rate

The standard mileage rate is a fixed rate that you can apply to figure out the deductible costs of operating your car for business purposes. For example, the US IRS’s standard mileage rate in 2007 was 48.5 cents per mile.

If you choose to use the standard mileage rate, you cannot deduct your actual car expenses. 

Actual car expenses

If you choose to file using your actual car expenses, then you can claim your actual expenses, which can include depreciation, fuel, oil, registration fees, repairs, insurance, etc.

Keep detailed records and all your receipts. Come tax time, calculate both methods and file using the method that gives you the highest deduction. Note that not all people qualify to choose from either option, so be sure to check out the exceptions.

This post refers to daily trips, such as visiting clients, driving to business meetings, etc. Overnight trips fall under the IRS’s definition of travel and are not covered in this post.

This article refers to US IRS guidelines only. Tax regulations differ from country to country and are subject to change. So be sure to check with an accountant or otherwise qualified professional about your specifics.

Writing off business use of your car is one of the many topics you’ll become familiar with once you become a consultant.

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Tony Rose says:

Note that there were two different mileage rates for 2008 in the U.S. due to fuel cost rising. The first half of the year was .55 cents per mile and then went to .585 cents per mile. I’m not sure on the exact dates.