The Actual Expense Method — Supersizing your Business Auto Deductions

The Actual Expense method of tax deducting vehicle expenses requires greater record keeping than the Standard Mileage method, but it can be well worth it. For many newer vehicles — especially gas guzzling SUVs and luxury rides — the actual expense method can produce double or more tax savings over the Standard Mileage Method described in another blog on this site. That fact should get your interest!

Vehicle operating expenses deductible with the Actual Expense Method

  • *Depreciation, if you own the vehicle (see note below)
  • Lease payments, if you don’t own
  • Gas
  • Oil changes
  • Insurance—liability, collision, etc.
  • Interest on a vehicle loan
  • License fees, if your state bases the fee on the value of the vehicle
  • Motor club membership dues
  • Parking and garage rents
  • Personal property taxes in your state
  • Repairs and maintenance
  • Tires
  • Tolls and parking
  • Car washes

 

*Depreciation: The cost of a buying a vehicle is not tax-termed an “operating” expense. However, it can be deducted, commonly called “written off,” as a depreciation expense. And, under tax code section 179 the purchase may qualify for an additional first year tax write off . Just how much you get to deduct depends upon the cost, type of vehicle and when during the year you purchased it. IRS Publication 463 “Travel, Entertainment, Gift and Car Expenses” (irs.gov), and “Tax Savvy for Small Business” (Nolo), have the details.

Important to know: You still must keep track of your business miles whether using the Actual Expense method or the Standard Mileage Method.

For more information, see my book, Tax Savvy for Small Business (Nolo) at Amazon.com and visit my website, taxattorneydaily.com

Frederick W. Daily, J.D, LL. M (tax)
Frederick W. Daily, J.D, LL. M (tax)

Fred Daily is a tax attorney with over four decades of experience in the tax field. He has given tax programs for CPAs, Enrolled Agents and even the IRS. Fred has been quoted in the New York Times, Wall Street Journal, and has appeared on CBS, NBC, Fox, NPR news features and ABC’s Good Morning America. He is an author of books on taxes and his website, taxattorneydaily.com features a wealth of tax tips for minimizing taxes and dealing with IRS issues.