I will be starting my own business soon and was wondering if I can deduct any of my vehicle expenses?
Each year I answer hundreds of questions from self-employed individuals, but the most common questions are those with reference to deducting vehicle expenses. In answer to your question, yes, you can deduct certain expenses applicable to the use of your vehicle for business purposes. This answers your initial question but the inevitable next question is how much. This part of the question is somewhat more complicated.
There are two methods of calculating the deduction for vehicle expenses. They are the standard mileage method and the actual cost method.
The standard mileage method is the more simple method and sometimes yields the larger deduction of the two methods. With this method, you only keep track of the business miles you drive during the year and the total miles driven with your vehicle. Your deduction is simply the standard rate allowed by the IRS for the year, in question, multiplied by the total business miles driven. This standard rate covers most of your vehicle expenses such as depreciation, gas, oil, maintenance, repairs, insurance, etc. It does not include parking, tolls and interest on your vehicle note (self- employed persons only). These items can be added to the amount calculated using the standard rate.
You will make an election of the method you choose in the first year the vehicle is put into business service. You can change from the standard method to the actual method if your vehicle is not fully depreciated. Also, if you elect this change, you must only use the straight line method of depreciation based on the estimated useful life of the vehicle.
Please keep in mind that this discussion relates only to self- employed individuals and does not address the deduction of vehicle expenses by employees.
In the second part of this two part article I will discuss the actual cost method.
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