Automobile Expenses

DIY Bookkeeping Lesson No. 2

Blue Car Driving

If your business requires you to travel from point to point to provide services and or deliver products to your customers, you can keep track of your automobile expenses to deduct on your tax return.

There are two methods:

Actual Expense Method

If you are tracking actual automobile expenses, then keep receipts for “gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments)” (IRS Topic No. 510 Business Use of Car). 

You will need to be able to determine the amount of these expenses that can be applied to the business use of your car.  This means you should keep a record of all miles driven for business purposes in a mileage log book or app. I also recommend writing down the odometer reading on January 1st and the reading on December 31st, since you will need to know what percentage of all miles driven were business.  Here is an example:

Let’s say your beginning odometer reading on January 1st was 10,000 and it was 20,000 on December 31st.  You know that the total driven for all purposes was 10,000. Now let’s say that your mileage log for the year shows a total of 2,000 miles driven for business.  Twenty percent of all miles was business and eighty percent was personal. Now your tax preparer or Turbotax can calculate the total amount of actual automobile expenses that can be applied to your business as a deduction. 

Standard Mileage Rate Method

If you drive a considerable number of miles during the year for business, you may find that the standard mileage deduction will be much better than the actual expense method.  This method takes the total business miles driven and multiplies it times the standard mileage rate determined by the IRS each year (.58 per mile in 2019)

You cannot claim both mileage and actual automobile expenses. It has to be one or the other with the exception of parking fees and tolls paid which can be claimed in addition to mileage.  Whichever method you use, you will need to keep a mileage log.

An alternative to keeping a written mileage book is a mileage app like Mile IQ.  These will automatically track your miles when you start driving. If you do choose to use an app, go with one that sends reports to your email regularly.  If your app crashes or your phone is lost you will have a backup.

Records of Automobile Expenses

Keep receipts for everything you spend money on in your business and that includes auto expenses. It is just as important to keep a mileage log and make your entries every day so you won’t have to piece the information together later with guesswork. Also, print a copy every month and include it with your automobile expenses in the monthly envelope as discussed in Lesson No. 1.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.