Some reminders for your clients who use their cars for business reasons: the IRS okays use of one of two methods to figure business-driving deductions; actual expenses or a standard mileage rate that’s adjusted upward each year to take inflation into account.
As previously reported, the standard rate for 2017 is 53.5 cents per mile, down from 54 cents for 2016. And just to be clear, the IRS’s definition of "car" includes a van, pickup, panel truck, or motorcycle. Clients can claim actual expenses if it’s more advantageous to write off allowable operating costs.
The list of deductible items includes:
- license tags
- registration fees
- garage rent
- lease payments
- parking fees
But the interest portion of car payments isn’t a deductible car expense if you’re an employee, though it’s deductible if you’re self-employed.
Selection of the actual-expense method in the first year the car is used for business means you must stick with that method as long as you have that car. Moreover, there are restrictions on depreciation deductions for cars used less than 50 percent of the time for business driving.
Another limitation applies to cars used for both business and personal driving. You have to divide total costs between the two purposes; the cap on your deductions is the percentage of costs attributable to business use.
As an alternative to writing off actual expenses, you may be able to use a standard mileage rate that encompasses depreciation, as well as insurance and other car expenses. The standard rate's advantage is that you’re spared the bother of tracking actual expenses; records need to be kept only of business miles driven for the year in question.
Employers commonly use the rate to reimburse employees who drive their own cars in the course of their employment. Employees who are reimbursed can deduct actual expenses that exceed the reimbursement.
The IRS restricts use of the standard rate. Decide against use of the rate in the first year and you’re precluded from use of it for that car in any year. But if you do use it in the first year, there’s some leeway. In later years, you generally have the option to use the rate or actual expenses.
Besides claiming the mileage allowance, remember to take a separate deduction for parking fees, as well as bridge, tunnel and turnpike tolls that you pay while you’re on business. Parking fees that you pay to park your car at your place of work are nondeductible commuting expenses.
If the IRS audits your return and questions car expenses, it won’t challenge a standard-rate deduction, provided you’re able to substantiate the miles driven; actual expenses are disregarded. So you need to keep a glove-compartment diary or other record in which you list the details of when, how far and why you went, along with the cost of parking and tolls.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 200 and counting).
About Julian Block
Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com.