Cars and Business Tax Deductions

Most business-related auto expenses are eligible for a tax deduction.

Most business-related auto expenses are eligible for a tax deduction.

The Internal Revenue Service rules to deduct car and other vehicle expenses differ widely depending on whether you run the business or if you're the employee. Self-employed taxpayers can deduct all relevant expenses. If you work for someone else, the IRS makes you jump through hoops to take the deduction for car expenses your company doesn't reimburse. Employees have to meet a minimum percentage of adjusted gross income, itemize on Schedule A and fill in additional tax forms.

Can 1099 Employees Deduct Car Expenses on a Tax Return?

Yes -- everything except miles between home and the office counts. You can start and stop with the standard mileage rate, 55.5 cents per mile as of 2012. You can choose instead to write off pro-rated portions of what you actually spend on insurance, maintenance and gasoline. You can even write off depreciation in the car's value and part of the interest paid on a car loan. Best of all, these deductions aren't subject to the 2 percent of adjusted gross income minimum forced on employee expenses on Schedule A. Car expenses for 1099 employees go on Schedule C, line 9.

Can You Deduct Car Rental Expenses as Unreimbursed Business Expenses on Your Income Tax?

You can write off any expenses your employer doesn't cover, but only if you itemize and fill in form 2106. The big monkey wrench in this scenario is your unreimbursed business expenses must be greater than 2 percent of your adjusted gross income to qualify. You can lump in other miscellaneous work expenses to the AGI: subscriptions to trade magazines, dues to professional organizations, specialty tools and clothing you buy for work all count. Even so, it will be tough to meet the 2 percent threshold. Report these expenses on line 21 of Schedule A.

Can a Home Child Care Use Car Interest as a Deduction?

You can as long as the car is used for the business. Keep track of how many miles you drive each year just for the business since you can only claim that percentage of the total miles. It's fine to estimate this based on an average month. The write off goes on line 16b of Schedule C. If you don't run a child-care business, you can't take any deduction here.

Can Car Rentals Be a Tax Deduction if Used During Repair Work to a Delivery Vehicle?

As long as you're the business owner, and a vehicle is vital to the operation, you can deduct any costs associated to the rental, including insurance. Those costs go on line 20a, while gas goes on line 9 of Schedule C. You can't take the standard mileage since you don't own the vehicle. If you're an employee and use your own vehicle for work, you can take a deduction for any unreimbursed work-related expenses on Form 2106 and Schedule A.

Can You Deduct Auto Excise Taxes on a Leased Car?

Like any other auto expense, the Internal Revenue Service treats personal and business use differently for tax purposes. If you lease the car for your business, and deduct actual expenses instead of taking the standard mileage, you can throw in the excise taxes. If it doubles as your personal car, you can only deduct the miles it was used for business. Put this idea in park if you're leasing only for personal use; excise tax is part of the price of the vehicle, so it's not a deduction.

 

About the Author

Naomi Smith has been writing full-time since 2009, following a career in finance. Her fiction has been published by Loose Id and Dreamspinner Press, among others. She holds a Master of Science in financial economics from the London School of Economics and a Bachelor of Arts in political economy from the University of California, Berkeley.

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