Deducting car expenses from your taxes can only be done in certain situations. Figuring out which types of situations are deductible and which are not, however, can be a challenge. The tax code can be very confusing when it comes to determining this distinction. The following five car expenses can be deducted from your taxes, however.
1. Travel expenses incurred during a move. Moving more than fifty miles away from your current residence, as long as the move is for a job, allows you to deduct a lot of travel expenses. Currently, the IRS allows you to either use a mileage rate or add up the total of your fuel costs. To use the mileage rate, simply multiply the total number of miles of the trip by the factor provided each year by the IRS. If you drive a fuel guzzling car or truck, though, you may come out ahead to save and add up your gasoline receipts from the trip.
2. Loan interest, depreciation, and insurance for a vehicle used as part of a business. If you use your vehicle for a business that you own, you are allowed to deduct many of the costs associated with owning and operating the vehicle. The amount of interest you pay on your car loan, the depreciation of the car, and the insurance costs of the vehicle are all tax deductible. Of course, if you also use the vehicle for personal reasons, you are only allowed to count a portion of these expenses as deductible.
3. The donation of a vehicle to a charity, or the use of the vehicle for charity. If you donate a vehicle to a non-profit charity, you can deduct the appraised value of the car at the time it is being donated from your taxes. If you drive in order to support a charity, however, you are able to deduct the cost of those miles from your taxes. Note that the mileage rates for charitable work is much lower than the rate allowed for business miles.
4. Driving to a medical appointment or for a medical purpose. As defined by the IRS, a medical purpose means “driving for the purpose of obtaining medical care for yourself or your dependents” according to the IRS Publication 502. This can include both emergency care and recurring appointments such as physical therapy. The mileage rate for medical expenses is usually an amount between the amount allowed for charitable work, but less than that allowed for business purposes.
5. Tolls, parking fees, registration fees, and personal property tax. Taxes paid to state and local authorities are considered to be deductible on federal tax returns. In some states, vehicle registration fees are also deductible from state income taxes. If you have paid any of these taxes on your business or personal use vehicles, be sure to save your receipts. Recently, the IRS has added a calculator designed to provide an estimate of these expenses to their website. This calculator does not include mileage, parking fees, and tolls, however. In the case of tolls, an estimated amount is allowed.
When completing your taxes for this year, be sure to take your deductions for your vehicle and travel expenses.