Key Topics to Understand Automobile Expenses and Mileage Deductions for 2018 Taxes
For many Americans, work and personal time have become increasingly intertwined. For those who must drive as part of their work, knowing all the auto-related deductions can ensure that your car is working as hard for you as you are for your paycheck.
In 2018, you can write off 54.5 cents for every business mile. You have two options for deducting your vehicle expenses: the standard mileage rate or the actual expense method. To claim mileage on your tax return, there must be diligent records of the drives throughout the year.
Here are a few key topics to understand regarding mileage deductions:
- Standard Mileage Rate – With the standard mileage rate, you take the deduction of a specified number of cents for every business mile you drive. Multiply your business miles by that year’s standard mileage rate to determine your deduction.
- Actual Expense Method – This method is an IRS-approved method for claiming expenses related to the use of an automobile for business purposes, which are then used as valid deductions from income on a tax return. To use it, compile the actual costs incurred to operate the vehicle, which can include gas, repairs, vehicle insurance, registration fees and licenses.
- Personal Use vs Business Use – To determine which type of write-off to use, evaluate the use of the vehicle: personal or business. People often do a little of both. If a car is used exclusively in your business, you can deduct car expenses. If you use your car for both business and personal purposes, you must divide your expenses based on actual mileage.
- Mileage Reimbursement vs Mileage Deduction – it’s important to know the difference between these two terms. A reimbursement is when an employer or client pays you a certain rate for the miles you drive. Mileage deduction is when you take a write-off for the miles you drove on your annual tax return. The IRS doesn’t require employers or clients to reimburse you for mileage. Many offer reimbursements as a perk to maintain and attract employees, but there’s no mandated federal mileage rate for non-governmental employees.
When deducting your auto expenses, it is extremely important to keep meticulous records throughout the year to make sure you are ready when tax time arrives. The more information, the better.