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Business Use of a Vehicle

Taxpayers who use their vehicles in their daily business operations can report their mileage deduction on their business returns such as Schedule C, Form 1065, Form 1120S, or Form 1120. As of tax year 2018, under the Tax Cuts and Jobs Act of 2017(TCJA), employees who use their vehicles for their were no longer able to deduct their mileage.

The new law allows mileage deductions exclusively for a trade or business. However, if a taxpayer uses the vehicle for personal use in addition to business use, records must be maintained to allocate business expenses. Keep in mind, that personal and commuting miles are not deductible but do affect the business percentage use of the vehicle.

Standard mileage rate vs. actual expenses:

Taxpayers may choose to use the standard mileage rate or actual expenses when deducting business use vehicle expenses.

There are circumstances in which the taxpayer may not use the standard mileage rate:

  • If the taxpayer has ever taken a Section 179 expense deduction for the vehicle, taken the special depreciation allowance, or depreciated the vehicle using a method other than straight-line depreciation, they are not allowed to use the standard mileage rate.

  • If the taxpayer is a rural mail carrier and they received a qualified reimbursement for their expenses, they are not eligible to use the standard mileage rate deduction.

  • A Taxpayer who uses five or more vehicles in their business at the same time is not eligible for the standard mileage rate deduction.

Taxpayers who choose to deduct vehicle expenses by using the standard mileage rate will not deduct actual expenses. Instead, the taxpayer would need to multiply the number of business miles per year by the standard mileage rate as established by the IRS.

In addition, the standard mileage rate may apply to medical, moving, and charitable mileage. The medical and moving mileage for the 2020 tax year is 17 cents per mile. The standard mileage rate for charitable miles is set by statute, not the IRS, 14 cents per mile. The business mileage for the 2020 tax year is .575 cents per mile.

As a business owner there are a lot of benefits when using the standard business mileage or actual expense:

  • Standard business standard mileage rate includes an amount treated as depreciation for the vehicle.

  • Actual vehicles expenses can include, Gas, Oil, Tires, Vehicle Maintenance, Repairs, Insurance, Vehicle Registration fees, vehicle inspections, depreciation or lease payments.

To learn more on how to apply these deductions on your upcoming 2020 tax return, contact tax expert such as Direct Point Accountant Firm.


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