Individuals who travel for business reasons can deduct their actual car expenses. The list of deductible items includes gas, oil, tires, repairs, license tags, registration fees, insurance, garage rent, lease payments and depreciation. As an alternative to writing off actual expenses, you may be able to use a standard mileage rate that is adjusted each year to reflect inflation. The advantage of the optional standard rate is that it eliminates the extra burden of tracking actual costs; records need to be kept only of business miles driven for the year in question.
Gas is a major factor in the optional figure, but the IRS also considers other items, such as insurance and the price of new vehicles. The IRS’s definition of “cars” includes vans, pickups, panel trucks and motorcycles.
For 2007, the standard rate is 48.5 cents per mile, up from 2006’s 44.5 cents per mile. The standard rate is a benchmark used by the federal and state governments and many employers to reimburse employees for their mileage. Employees can claim itemized deductions on Schedule A of Form 1040 for actual expenses that exceed reimbursements, subject to the 2 percent floor for nonreimbursed employee business expenses and most other miscellaneous itemized deductions.
Do you qualify to claim both actual expenses and the mileage rate? There is just one way to know which option provides a larger write-off: figure your deduction both ways. Usually, actual expense is more advantageous than the per-mile rate, particularly when there is a prolonged spike in gas prices or your vehicle is a gas-guzzler. But the reverse can be true for folks who have extremely low outlays or scant business mileage.
The IRS allows individuals who require medical care and drive to and from doctors, clinics, hospitals and the like to deduct actual costs of gas and oil or a standard rate—for 2007, 20 cents, up from 2006’s 18 cents.
Individuals who move for job-related reasons and use their cars to transport themselves, members of their household or their belongings can deduct actual costs of gas and oil or a standard mileage rate that is the same as the one for medical driving—for 2007, 20 cents, up from 2006’s 18 cents.
Persons who use their cars to perform services for such charitable organizations as schools and religious institutions can deduct actual costs of gas or oil or a standard mileage rate. It is 14 cents for 2007 and 2006, a rate fixed by law.
Besides claiming mileage allowances, remember to take separate deductions for parking fees, as well as bridge, tunnel and turnpike tolls. And drive within speed limits. The feds forbid deductions for traffic tickets. It makes no difference that you were on the way to teach Sunday school or racing the stork to the hospital.
An example: To obtain medical care during 2007, you drive 1,000 miles and pay $50 for parking charges and bridge tolls. Your allowable deduction: $250 (1,000 miles times 20 cents equals $200 plus $50 parking).
If the IRS audits your return and questions car expenses, it will not challenge standard-rate deductions, provided you are able to substantiate the miles driven; actual expenses are disregarded. So, it is advisable to keep a glove-compartment diary or other record in which you list the details of when, how far and why you went, along with the cost of parking and tolls.