Unless you're an accountant or a salesman, you may not have noticed the IRS just upped the mileage deduction rate for privately owned vehicles to 58.5 cents per mile. Sounds like the perfect time to find out how far we could turn our daily driver into a government tax rebate on wheels. We've decided to use my daily driver as an example to see if we could, hypothetically of course, deduct as much as we're actually spending to drive it. Without further ado, here's our quick guide to deducting the cost of your car.
First of all, the IRS lets you determine the amount of your deductible car expense using one of two methods: the standard mileage rate method or the actual expense method. To use the standard mileage rate there's a variety of tests you need to meet, but they're all pretty straightforward — you must own or lease the car; the car must not be used for hire, for example as a taxi; you must not operate five or more cars at the same time, as in a fleet operation; etc. To use the actual expense method, you must determine what it actually costs to operate the car for business purposes. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to business miles driven.
Because of the recent rate change, it's probably more relevant for us to talk about method, but the IRS suggests you should run the numbers both ways to see which offers the greater deduction. Since we'll be using the standard mileage rate method, here's the straightforward calculation to use:
# Of Miles x $0.585 = Deduction Amount
Two more things to note are that the IRS allows other car expenses for parking fees, and tolls attributable to business use as separately deductible, whether you use the standard mileage rate or actual expenses. The other notable is more like a tip — document everything. You're dealing with the government here, so make sure you supply enough paperwork to convince them that even if you're gaming the system, you're at least doing it meticulously. Photographs are essential, along with trip dates, times, distances, destinations, persons spoken with and on what business.
Now that that's out of the way, let's get on to the fun part. For purposes of this hypothetical scenario we're going to be using a 2003 Saab 9-5, mainly because we happen to have one lying around. Purchased used, this vehicle has a monthly payment of approximately $300. Add on the insurance and annual registration fees, and we're talking about $350 a month. All we'll need to do is add on the cost of gas for the month at the end to determine whether we'll be able to deduct all of our costs.
So — can we get the man to pay? Let's find out.
Example I: Visit co-workers you wouldn't ordinarily see: DEDUCTIBLE
Keeping in touch is essential, so when phone, IM, email and videoconferencing aren't enough, get in the car and go see your peers. A monthly trip to Chicago from Detroit and back to see Mr. Hardigree is worth 570 miles. That would be:
570 miles x $0.585 per mile = $333.45
Two days in and we're already two-thirds of the way to our goal — this may be easier than we thought.
Example II: Find ways to make work-related trips secondarily personal: DEDUCTIBLE
An empty car is your worst enemy, since it's much harder to claim a business-related expense when you're traveling alone. In our case, a 30-mile one-way trip to help a friend wrench on his old Buick could have been a loss. But the addition of a couple essential tools and a camera resulted in both a story for Jalopnik and the line item "photo shoot location and back." Total miles: 60. That means:
60 miles x $0.585 per mile = $35.10
Example III: A quick stop on a personal trip: NOT DEDUCTIBLE
Here's an instance where you can't score big. We like to visit a gorgeous little cold water destination known as Traverse City, MI a couple times each summer. At nearly 500 miles round trip from Detroit, the journey can get pricey these days...but even if we stop along the way to take photographs of car dealerships for a future Jalopnik feature, we can't deduct those 490 miles. Such a shame.
0 miles x $0.585 per mile = $0.00
Example IV: Buy your personal goods when you head out to buy work-related supplies: PARTIALLY DEDUCTIBLE
The key here for a full deduction is to make them all at one place. Heading to Dick's for more shotgun shells with a stopover at Staples for those pens for work? Only a partial deduction of the 10 miles from Staples to Dick's or from home to Staples — but not the 10 miles between Dick's and home. However, let's say we're working on a story on brakes. We head to the convenience store 40 miles away that carries pints of brake fluid for 30% less than the place near home to save Nick Denton a few bucks, and we also buy personal groceries? That's fully deductible. Total miles deductible: 90.
90 miles x $0.585 per mile = $52.65
The Bottom Line
If you've got your graphing calculator humming, you'll see we could have racked up 1,210 miles with 650 of those miles reimbursable, for a total of $421.20. But how much gas did we use? Well, we get an average of 25 MPG in the Saab. Divide 1,210 miles by 25 MPG and we purchased 48.4 gallons of mid-grade gas. At $4.10 a gallon average for mid-grade at the station down the block, that's a fuel cost of $198.44. Add that to the $350 and you'll see that we needed $548.44. Aww, just a little too little business driving this month to pick up the entire cost.
Still, that would have paid for the Saab's car note, insurance, and a little something leftover for a few gallons. Sort of. Remember, your deductions aren't like real cash, so you're really just able to say the money you spent was spent without federal taxes, not like it's that full amount back in your pocket. So what did we learn today? Drive more for business than you do for pleasure, and you'll still probably end up getting screwed in the end — but at least you'll get screwed less!
For more information, please check either IRS Publication 463 or check with a tax accountant. (Photo Credit: StreetsBlog.org/Flickr via Jenny Lokshin)