How Do Changes in the Tax Law Affect Driving Expenses?
This article has been updated to include information about the latest tax law changes - the 2017 Tax Cuts and Jobs Act.
The key change that affects employees who drive for business purposes is the elimination of the deduction for unreimbursed employee business expenses. In the past, you could deduct any driving expenses that were not paid by your employer on your personal tax return. Beginning with the 2018 tax year, through the 2025 tax year, employees can't deduct these expenses on Schedule A.
Are Commuting Miles Deductible?
Q: I was an independent contractor last year. I traveled to get my son, who worked on the job with me. Can I claim the mileage to pick him up and drop him off as a mileage expense?
A: No, you cannot claim mileage to pick up your son who works for you. The distance between home and work is considered commuting. Everyone has to get to work, so the IRS doesn't consider these expenses as business expenses. If you decide you want to travel long distances every day to commute, or you want to go out of your way to pick up a co-worker, that is still commuting as long as you are home every night.
Can I Deduct Travel Miles as Advertising?
Q: If I put my company's logo on my car, can I deduct my traveling miles as advertising?
A: No, a company logo on your car does not make it a business vehicle.
The advertising expense in this example is the cost of putting the logo on the car. Driving the car around is not advertising; it's just driving. The IRS says, "Putting display material that advertises your business on your car does not change the use of your car from personal use to business use."
Are Miles from a Home Based Business Deductible?
Q: If I work out of my home as an independent contractor, can I claim mileage to work sites and back home? Can I deduct trips made to the bank and post office? What if I make business-related trips from my home office and also stop to do personal errands?
A: If your home is your tax home (as defined by the IRS) you can deduct the cost of driving from your home to business locations (like a client's office or the office supply store) as a business expense. Your tax home is the place where you regularly do business. That can be your family home if you do business in a specific area of your home.
Yes, your mileage to work sites and back are business miles that must be supported by written documentation of where you went and how many business miles you traveled. Trips to the bank and post office also qualify as business mileage if documented.
The business purpose should be the reason for the trip and you will need to have excellent records on the purpose in order to document the deduction. You must separate out personal driving from business driving, by keeping contemporaneous records (at the time of the event). For each business trip, you must show business purposes.
The end result of your records should be business miles for the year (with a backup written log) and the total miles you drove for the year. To document your total miles driven, take your odometer reading at the beginning and end of the year. The IRS often looks at the odometer reading on auto repair bills to see if your total miles are reasonable.
To make mileage tracking easier, consider a mileage tracking app. Some allow you to separate out business and personal miles.
Which Should I Use - the Standard Deduction or Actual Expenses?
Q: How do I know whether to take the standard deduction or use actual expenses?
A: You should try both the standard mileage deduction and actual expense method to see which method gives you the largest deduction. The larger the deduction you are entitled to, the more you save in taxes.
For the actual cost method, determine the business percentage of use based on business miles documented divided by total business miles driven for the year. Apply that percentage to actual expenses of owning and operating the vehicle; including gasoline, oil, tire, maintenance and repairs, insurance, repairs, insurance, registration fees and licenses, car washes, lease payments or depreciation if you own the car.
For the standard mileage rate, multiply the total business miles by the standard mileage for the year.
There are some restrictions on the use of these two methods. To use the standard deduction, you must use it in the first year, then you can choose either method in later years. If you lease the car and you use the standard deduction the first year, you must use it for the entire lease period.
To use the standard mileage rate, you must own or lease the car and:
- You can't use it for fleet operations (five or more cars at the same time)
- You must use the straight-line depreciation method if you want to depreciate the car
- You can claim the special depreciation allowance or a Section 179 deduction, and
- you can't claim actual expenses after 1997 for a car you lease.
Are Estimates Acceptable?
Q: I drove about 8,000 miles last year for my home business. I have some receipts, but I didn't log all the miles. Is an estimate OK? Can I still take the deduction if I don't have all the supporting information?
A: No, estimated business miles are not allowed to support your mileage deduction.
Here's an example of what can happen if you estimate:
The tax court disallowed the auto expenses in 2009 for the owner of a real estate brokerage firm and her employee in Engle v. Commissioner. The taxpayer admitted that their reported mileage amounts were estimates. In a summary opinion, the Court held that due to lack of substantiation the taxpayers were not entitled to the auto deduction.
If, as in this case, your deductions are disallowed, your business may be subject to fines and penalties for underpayment of taxes.
Can I Deduct Mileage for a Non-company Car?
Q: I am using my mother's car for my business driving. I pay gas, maintenance, and insurance. Can I deduct the use of the car as a business expense?
A: You can deduct the actual expenses that you pay and as long as you keep contemporaneous (at the time) records for these expenses. You must have proof that you pay the gas, maintenance, and insurance and you need substantial records to support your business use. Make sure that you take out your personal use and your mother’s personal use; only your business use is deductible.
While you can claim mileage deductions on a car you don't own, you can't depreciate the vehicle as a business expense.
What If I Don't Use My Car Very Much for Business?
Q: I'm using my personal car for my business, but I work from home and don't use it much. Can I still deduct mileage expenses and depreciate the car?
A: If you use your car 50% or less for business purposes, you can still deduct standard mileage or actual costs, based on your percentage use of the car for business.
For depreciation purposes, special rules apply if you don't use your car 50% or less for business purposes:
- You can't take a section 179 deduction or special depreciation allowance
- You must figure depreciation using the straight-line method over five years.
What If I Lease a Car for My Business?
Q: I decided to lease a car for my business. Can I still deduct mileage and depreciate the car?
A: If you have a leased vehicle, you can still use either standard mileage or the actual method to figure your deductible driving expenses. If you use the actual method, you can deduct the part of the lease payments that are for the use of the car in your business.
There are some special complicated rules for figuring depreciation and the value of the leased vehicle ("inclusional amounts"). See IRS Publication 463 and talk to your tax professional before you try to include the costs for this vehicle in your business tax return.
Disclaimer: The information provided here is for general information purposes only; it is not intended to be tax or legal advice. Each business situation is specific; talk to your tax professional before you prepare your business tax return.