The Internal Revenue Service offers two types of deductions for vehicle expenses. They can either deduct the actual vehicle expenses or figure out their deduction based on the standard mileage rate.
If you haven’t decided on which deduction to take on your tax return, it’s fairly easy to decide. The deduction that grants you the highest amount is what you should take on your tax return. To figure this out, you will need to calculate both deduction amounts.
The following expenses qualify for actual vehicle expenses deduction.
- Garage Rent
- Gas and Oil
- Maintenance and Repairs
- Registration Fees and Taxes
- Rental or Lease Payments
- Tolls and Parking Fees
- Vehicle Loan Interest
The registration fees, taxes, vehicle loan interest, tolls, and parking fees are also deductible with the standard mileage deduction.
The above are the qualifying expenses for operating a vehicle for business purposes. This deduction was available to most taxpayers but with the Tax Cuts and Jobs Act of 2017—it’s now available for only self-employed individuals and those who actively serve in the United States Armed Forces.
Here is a simple comparison of the actual expenses vs. standard mileage deduction.
2020 Mileage Rate is 57.5 cents per mile driven.
Miles driven for business purposes: 10,000
10,000 x 57.5 cents = 575,000 cents/$5,750
If your actual expenses doesn’t exceed $5,750, then there is no reason for you to take the actual vehicle expenses deduction.
The bottom line is regardless of which deduction you’re anticipated to claim whether it be the standard mileage deduction or the actual vehicle expenses deduction, take the one that reduces taxable income the most.
Those who are self-employed are most likely to get the highest in standard mileage deduction though. This is due to the number of miles driven. As the number of miles driven gets higher, so as the deduction you’re eligible to claim.
For example, if you only drove 1,000 miles during the course of the tax year, your deduction isn’t going to exceed $575. The operating cost of a car with 1,000 miles on it is most likely to be more than the deduction amount you get from the standard mileage deduction, Therefore, you should take calculate the qualifying vehicle expenses to claim the actual vehicle expenses deduction.