If the taxpayer uses a car or truck in their business, they can ordinarily deduct expenses related to the car or truck. The amount of car and truck expense reported on Schedule C, Schedule E, or Schedule F is the either the total of the actual expenses or a calculation based on the business mileage multiplied by the prevailing standard mileage rate.
Actual expenses include items such as depreciation, lease payments, maintenance, repairs, tires, gasoline, oil, insurance, and license and registration fees. Other vehicle-related expenses such as parking fees, tolls, interest, and state and local personal property taxes are treated as separate non-vehicle deductions.
Standard Mileage
- Standard mileage encapsulates in one number all operating expenses for a vehicle, including depreciation. It does not include parking fees and tolls, interest related to the purchase of the vehicle, and state and local personal property taxes, all of which are deducted separately. Thus, if standard mileage is used for a year, actual expenses cannot also be claimed for that year.
- If using standard mileage, it must be chosen in the first year the vehicle is placed in service. In future years, it can be changed to actual expenses, but then cannot be reverted back to standard mileage. Exception: a leased vehicle cannot change from standard mileage to actual expenses.
- The decision to use standard mileage for a vehicle must be made before the deadline for filing the return.
- You cannot use standard mileage if five or more vehicles were in use simultaneously in the business.
- For IRS standard mileage rates, click here.
Actual Expenses
- The decision to deduct actual expenses for a vehicle can be chosen at any time during the useful life of the vehicle, but once chosen cannot be changed to standard mileage.
- If changed from standard mileage, you must use straight-line depreciation for the remainder of the years the vehicle is in service.
Two caveats:
- If actual expenses are used to figure the deduction for a car that is leased, there are rules that affect the amount of lease payments that can be deducted. See IRS Publication 463 for more info.
- Armed Forces members who use their own vehicle to travel for work are entitled to deduct actual expenses or the standard mileage rate to figure the deductible costs of operating their vehicle for the unreimbursed business expense deduction on Form 2106.
- A vehicle bought and sold in the same year cannot be depreciated.
Depreciation
Depreciation is an annual deduction that helps recover the cost or other basis of business or investment property over a certain number of years. Depreciation starts when the property is first used in a business or for the production of income. The property ceases to be depreciable when the property’s cost or other basis has been fully recovered or when it is sold or retired from service, whichever happens first. Depreciation is reported on the tax return on Form 4562.
Several items must be considered to ensure the proper depreciation of a property, including:
- The depreciation method for the property
- Whether the taxpayer elects to expense any portion of the asset
- The class life of the asset
- Whether the taxpayer qualifies for any “bonus” first year depreciation
- Whether the property is “Listed Property”
- The depreciable basis of the property
Instructions for entering the information on Schedule C
If you are unfamiliar with creating a Schedule C in TaxSlayer Pro, click here for more information.
Form 4562 is required if you are using actual expenses and are depreciating the vehicle and/or claiming a Section 179 deduction. If you are using the depreciation module in TaxSlayer Pro, each vehicle's mileage and actual expenses will both be entered and the program will calculate both the depreciation and the allowable expenses.
Form 4562 is also generally required for vehicles classified as listed property, even if you are using standard mileage.
The Schedule C instructions indicate that if the taxpayer is using standard mileage and uses more than one vehicle in the year that you are to attach a statement to the return detailing each vehicle's contribution toward the total expense. Listing each vehicle separately in the program satisfies this requirement.
If standard mileage will be used and Form 4562 is not required to be used, in the Schedule C Expenses menu select
- Car & Truck
- Car & Truck (Std Mileage Rate - Schedule C)
- Enter/Edit Vehicles
If standard mileage will be used and you are required to or would like to use Form 4562, in the Schedule C Expenses menu select
- Car & Truck
- Car & Truck (Std Mileage Rate - Form 4562)
- Enter/Edit Vehicles
If actual expenses will be used, in the Schedule C Expenses menu select
- Car & Truck
- Car & Truck (Actual Expenses)
- New
- Enter Vehicle Information
If depreciation is being calculated, in the Schedule C Expenses menu select
- Depreciation
- Depreciation Module
- New - Enter the vehicle information:
- Description - Enter a description that will make it easy to distinguish the vehicle in the depreciation statements.
- Date Placed in Service - Enter the date the vehicle was placed in service, which may or may not coincide with the date purchased.
- Cost - Enter the cost of the vehicle net of any trade-in value on another vehicle.
- Business Percentage - Change from 100% if it's not used solely for business purposes.
- Federal Section 179 - If the taxpayer is taking the Section 179 deduction, enter the allowable amount.
- State Section 179 - If the taxpayer is taking the Section 179 deduction, enter the allowable amount.
- Accumulated Depreciation - Leave blank if purchased in the current year, otherwise enter the accumulated depreciation from prior years.
- Depreciation Method - Enter the appropriate method for this vehicle. See Publication 946 if in doubt, but passenger vehicles and trucks are generally MACRS 5 YR 200%.
- Indicate if the taxpayer wishes to take Bonus Depreciation, i.e., depreciate the vehicle entirely in the year of purchase.
- If the vehicle is Listed Property, select that menu line and answer Yes to the question, indicating what kind of vehicle it is, and entering the vehicle's mileages. (These mileage numbers are used to adjust the vehicle expenses in proportion to how much the vehicle was used for business versus personal use.)
Instructions for entering the information on Schedule E
From the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Rents, Royalties, Entities (Sch E, K-1, 4835, 8582)
- Rents and Royalties
- Select New or double-click the entry you wish to Edit. Select Pull if you prepared the return using the software in the previous year and wish to pull the data forward.
- Input the rental property information in the Schedule E Rental Property Information Menu. This will include the name of the property, the property address, and the zip code. The city and state information will fill in automatically based on the zip code that is entered.
- Select Expenses
If standard mileage will be used, select
- Auto & Travel
- Car & Truck (Std Mileage Rate - Form 4562)
- Enter/Edit Vehicles
- Select New
- Enter Vehicle Information
If actual expenses will be used, select
- Auto & Travel
- Car & Truck (Actual Expenses)
- Select New
- Enter Vehicle Information
If depreciation is being calculated, select
- Depreciation Module
- Select New
- Enter the Vehicle Information. If the vehicle is Listed Property, be sure to indicate that and enter the related information.
Instructions for entering the information on Schedule F
From the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Farm Income (Sch F)
- Select New or double-click the entry you wish to Edit. Select Prior if you prepared the return using the software in the previous year and wish to pull the data forward.
- Select the Principal Business Activity Code. This is a code used by the IRS to classify the type of business being operated.
- Input the information in the Schedule F Data Entry Menu.
- At the Schedule F - Questions Menu, there are several items that need review. The questions on this menu are defaulted to the most common answers for most taxpayers, however the questions should be reviewed to ensure the answers are correct for this taxpayer's situation. Adjust as needed.
- Select Expenses
If standard mileage will be used, select
- Car & Truck
- Car & Truck (Std Mileage Rate - Form 4562)
- Enter/Edit Vehicles
If actual expenses will be used, select
- Car & Truck
- Car & Truck (Actual Expenses)
- Select New
- Enter Vehicle Information
If depreciation is being calculated, select
- Depreciation Module
- Select New
- Enter the Vehicle Information. If the vehicle is Listed Property, be sure to indicate that and enter the related information.
Note: This is a guide to entering vehicle expenses into the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information:
Internal Revenue Bulletin: 2010-51
IRS: Instructions for Form 4562
IRS: Publication 463 - Travel, Gift, and Car Expenses
IRS: Publication 946 -
