What to Watch for with Business Auto Expenses….. Mileage or Actual Expenses?

The other day, I was having a casual conversation with someone who was repeating “expert advice” they had read on-line regarding business related auto expenses. I was certain they had interpreted said “expert advice” incorrectly. I informed them of the proper rules, but thought I should check what is indeed out there on-line from these “experts”. The information available on numerous sites (do they just copy each other?) was erroneous, hence today’s blog topic was born.


By far, the most common misinformation out there is regarding what is allowed the first year you claim auto expenses for a particular vehicle in your business. Many claim that you MUST claim actual expenses the first year of business use of a vehicle. This cannot be further from the truth (except when you have more than four vehicles, then do must use actual expenses). As a matter of fact, using actual expenses your initial year means you have to use actual expenses on the vehicle for the rest of time you own that vehicle!!!!

You DO have a choice (with 4 or less vehicles) between actual expenses and standard mileage, and that choice needs to be made the first year. If you choose actual expenses, you are married to that for the life of the vehicle. This may be the best option if you won’t have the vehicle beyond a few years. It enables you to take accelerated depreciation (Section 179 or bonus depreciation) in addition to the costs of running and maintaining that vehicle. One caveat, if you sell the vehicle, you may be subject to some recapture of that accelerated depreciation, which creates taxable income. If you trade-in the vehicle, the accelerated depreciation transfers to the new vehicle (you cannot take it again on the new vehicle with the trade-in), and that recapture gets deferred until you sell the new vehicle.

If you will have the vehicle for a number of years, standard mileage will usually be the better option for the long run. You may end up taking mileage expenses beyond the actual cost of the vehicle. If you choose standard mileage, you have the option of changing to actual expenses at a later date. Depreciation needs to be calculated for prior years in which standard mileage was taken, using straight-line depreciation to determine the remaining useful life of the vehicle. Items such as tolls and parking may be deducted in addition to the standard mileage.

The best thing to do for record keeping purposes is to keep some sort of log book in your car (if you use your cell phone, but sure to sync it with your computer in case you lose your phone!) and record the following information each time you drive the car for business reasons:

                                       • Date
                                       • Beginning odometer reading
                                       • Ending odometer reading
                                       • Business purpose
                                       • Place visited

Remember to check with a qualified tax advisor, discuss your future plans and determine the right choice for your business.

*A little known fact about mileage: generally miles commuting to work are NOT deductible, but if you have a second job, those commuting miles are deductible. This would be claimed on Form 2106 and Schedule A. If you don’t itemize (file a Schedule A), then it probably will not be of value to you.