Start A Business

Step 5: Car Expenses

If you use your car in your business, you can deduct car expenses. You generally can deduct either your actual expenses or the standard mileage rate.

Actual expenses - If you deduct actual expenses, you can deduct the cost of the following items:

• Depreciation
• Garage rent
• Gas
• Insurance
• Lease fees
• Licenses
• Oil
• Parking fees
• Rental fees
• Repairs
• Tires
• Tolls

If you use your car for both business and personal purposes, you must divide your expense between business and personal use.

Example. You are the sole proprietor of a flower shop. You drive your van 20,000 miles during the year: 16,000 miles for delivering flowers to customers and 4,000 miles for personal use. You can claim only 80% (16,000/20,000) of the cost of operating your van as a business expense.

Standard mileage rate - Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. You can use the standard mileage rate only for a car that you own. The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. It is announced annually by the IRS. To figure your deduction, multiply your business miles by the standard mileage rate for the year. If you choose to take the standard mileage rate for a car, you must choose to use it in the first year you place the car in service for business. In later years, you can choose to use the standard mileage rate or actual expenses.