How to Get Tax Deductions for Driving
There are enough tax deductions for autos to conclude that driving is a favored activity. But don't expect a leisurely jaunt. Deducting the cost of buying, maintaining, and operating a car can be frustratingly complex.
Assuming you have good records, it's not too late to comb though last year's driving for deductions on your 2006 return—even if only to alert a tax preparer you hire. And it's none to soon to begin planning to make the most of what's available for 2007.
Some guidelines:
If you drove last year to get medical care–whether to an out-of-town hospital or a nearby doctor's office–and you qualify to deduct uninsured medical bills, you can include 18 cents a mile in the overall medical total.
The law is less charitable about using your car when volunteering for charitable work or to get to a facility where you help out. In that case you can deduct 14 cents a mile, assuming you opt to itemize these and other deductions on the 1040's Schedule A.
Moved to a new town because of a job change? If your employer didn't help out, you may be able to write off 18 cents a mile to drive there, even if you don't otherwise claim itemized deductions.
The big payoff comes when driving on business. The per mile deduction is 44.5 cents—a fully deductible transportation expense on Schedule C or C-EZ if you're self-employed and typically partly deductible as a miscellaneous itemized deduction on Schedule A if you're an employee without an expense account.
A reason the business mileage rate is so much higher than the other rates is that it includes an amount to reflect depreciation on the car, which the others do not, notes Bob Scharin, an analyst at RIA, a publisher of tax guides.
Tolls and parking can be deducted in addition to the mileage amounts, but not other expenses such as general maintenance and insurance.
People who use their car for business, however, can opt to calculate actual expenses for gas and other items, including insurance, license fees, upkeep, and depreciation. (Though you can opt to figure your actual cost for gas and oil when calculating the deduction for moving, charity work, and medical care, you cannot take account of outlays for general maintenance, depreciation, and other operating expenses.)
Deciding whether to use the simplified mileage rate or add up actual expenses, says Scharin, depends on how much you drive, the proportion of tax-deductible use, the cost of the car, and other factors—some large SUVs used for business, for example, get extra favorable depreciation because they are partly treated under the law as a truck.
Business drivers who lease a car can claim either the mileage allowance or actual expenses, but ceilings may limit the deductible amount of lease payments.
Some twists: You can't deduct a normal commute to work, but you may be able to deduct the cost of driving from one job to a second one, commuting to a temporary job location away from your normal workplace, and traveling from a home office to make business calls. Deductible driving can include hunting for a new job, even if you don't get one.
For 2007, the business mileage rate rises to 48.5 cents and the medical and moving rate rises to 20 cents. The charity rate stays at 14 cents.
More information:
Chart: Mileage Deductions for 2007
Further help from the IRS: A topical index of tax form instructions and IRS publications available for online viewing can help you zero in on the details of deducting car expenses.
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