The Internal Revenue Service allows ordinary and necessary transportation expenses as deductions against business income for an automobile or truck used in business. If the vehicle is owned by the business, it can be depreciated, usually over a five-year period with some limitations.
Record the vehicle's beginning and ending odometer reading each year to calculate the total miles driven. Keep a detailed record of all miles related to business use. This includes local mileage (not overnight trips) traveling from your primary business location to another work location, to a client's or customer's location, to attend business meetings, conventions or seminars related to your business, to pick up supplies or products and to have the vehicle serviced or repaired. The IRS requires a contemporaneous record of all business mileage to claim a deduction. This means keeping a diary or log in which you enter business miles and the business purpose of the trip each day you use the car or truck for business. Business use for overnight trips is also deductible, but such use is classified as travel expenses and should be tracked and recorded separately.
Keep receipts for all vehicle maintenance and repairs, gas and oil, parking and toll fees, garage or space rent, auto insurance premiums, tires and vehicle registration. If the vehicle is leased, keep receipts for the lease payments. If it is financed, keep a record of the interest payments on the loan. Accounting software is helpful in recording, organizing and tracking these expenses. Scanning the receipts onto your computer or an electronic storage device can help keep the piles of paper receipts to a minimum.
Use a depreciation table to calculate the allowable depreciation expense each year. The IRS limits the total depreciable value of cars and trucks and the amount of depreciation expense allowed each year. In some cases, the entire depreciable value of the car or truck can be taken as an expense in the first year of use as a Section 179 expense. In subsequent years, only actual business expenses are deductible.
Decide whether to claim actual expenses or the standard mileage deduction during the first year the vehicle is used in business. The IRS sets the standard mileage rate each year and adjusts it to reflect changes in the cost of operating a vehicle. If you put the vehicle on a depreciation schedule, you cannot take the standard mileage rate. Instead, you must take the depreciation amount plus actual expenses for the year. Calculate the vehicle expense deduction both ways: Use depreciation (if the business owns the vehicle) and actual expenses and then recalculate using the standard mileage rate. Compare the results to determine which method is the better deduction. If you use actual expenses in the first year, you cannot switch in later years to the standard mileage deduction. If you have a fleet of five or more vehicles, you cannot take the standard mileage rate.
Claim only the business use portion of expenses and depreciation if you also use the car or truck as a personal vehicle. For example, if you drive the vehicle a total of 16,000 miles per year, but only 12,000 miles are for business purposes, you can claim 75 percent of the expenses and depreciation as business expenses. If you use the standard mileage rate, multiply the rate times 12,000 miles to calculate the deductible amount.