When you use your car for both personal and business reasons and you are not fully reimbursed through your employer for the business expenses, you can deduct those costs from your taxes. How do you go about claiming these deductions? Assuming that you itemize, you have two general paths:
- Standard Mileage Method – The IRS prints flat rates of reimbursement per mile driven for each calendar year. For 2017, the reimbursement rates actually decreased from 2016 levels. For business use of your vehicle, the standard mileage rate is 53.5 cents per mile, down from the 2016 value of 54 cents per mile. For 2018, the standard mileage rate will increase to 54.5 cents per mile for business miles driven.
- Actual Expense Method – Rather than calculate an average based on miles, you can calculate the actual expenses related to the non-personal use including gas, oil, maintenance costs, depreciation, tolls, parking fees, insurance, and other applicable expenses such as lease payments. IRS Publication 463 covers these in more detail.
If you qualify for both methods, it is worth calculating the total deduction by both methods to see which method works best for you. Employees deducting car expenses must fill out either Form 2106 (partial reimbursement from employer) or Form 2106-EZ (no reimbursement). This will give you the value to enter on Schedule A for itemized deductions. Note that these expenses are among those subject to the limit of 2% of adjusted gross income (AGI).
The Tax Cuts and Jobs Act (TCJA) of 2017 did away with many miscellaneous deductions subject to the 2% AGI cap, including the mileage deduction. This tax season will be the last time you can claim mileage, so make the most of it.
Follow the Instructions for Form 2106 to calculate the actual expenses. Part II of the form discusses allowable and non-allowable actual expenses.
If you lease your vehicle, you are still able to deduct leasing costs, but there may also be an inclusion amount that reduces your lease deduction. IRS Publication 463 gives details on the lease inclusion.
The default method for depreciation calculations is straight-line depreciation. However, if your personal car was used more than 50% for business purposes, you also have a choice between the 200% or 150% declining balance methods. Tables are included in the Form 2106 instructions to illustrate the difference. There are several alternatives for special cases, such as Section 179 depreciation and the special depreciation allowance for the first year of service. Consult Publication 463 for help in determining the best method for your use.
If you are self-employed, deduct your expenses on the appropriate form for your business: Schedule C, Schedule C-EZ, or Schedule F.
Form 2106 allows input for up to two personal vehicles used for business purposes. You can add a separate Form 2106 for two more vehicles. Beyond that, you are considered to be operating a fleet and this deduction is not available.
For leased vehicles, if you use the standard mileage rates, you are required to use the standard rates throughout the total life of the lease. You cannot switch to actual expenses in future lease years.
You can also claim a deduction on the use of your personal car for medical or moving purposes, as well as for charitable purposes. For medical and moving expenses, the 2017 rate is down to 17 cents from 2016's 19 cents. Use of your vehicle to serve charitable organizations is still at 14 cents per mile for 2017.
Moving expenses are claimed in a fashion similar to business expenses under IRS Form 3903. The TCJA eliminated the deduction for expenses on moves taking place after 2017, except for members of the military on active duty who relocate due to a military order. However, thanks to the new law, starting in tax year 2018, you will be able to claim the portion of medical and dental expenses that exceeds 7.5% of your AGI, down from a floor of 10% in 2017.
For charitable use, see IRS Publication 526 for details. Actual expenses for charitable uses are limited to gas, oil, parking fees, and similar simple expenses. Depreciation, insurance and general maintenance fees are not included. The TCJA allows you to claim charitable contributions worth up to 60% of your income, an increase from 50% in the past.
If the use of your personal vehicle qualifies under one of these categories, explore your deductible options. There is no reason not to take any deduction to which you are entitled. However, make sure you keep meticulous records on any reimbursements that you decide to take.
To balance out the loss of many itemized deductions, the TCJA raised the standard deduction to $12,000 for single filers and $24,000 for married filing jointly. This may well make itemizing less worthwhile for many filers going forward.
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