If you use a car or truck for in your business, you ordinarily can deduct expenses related to the car or truck. The amount of car and truck expense reported on Schedule C/C-EZ, 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 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.
- 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.
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
From the Main Menu of the Tax Return (Form 1040) select:
- Income Menu
- Business Income/Loss (Sch C, C-EZ, 1099MISC)
- Select New or double-click the entry you wish to Edit. If you prepared the return using the software in the previous year and wish to pull the data forward, select Pull.
- For a new business, select Schedule C or Schedule C-EZ. The Schedule C-EZ instructions indicate the requirements for when Schedule C-EZ may be chosen, if desired.
- Enter a Principal Business Activity Code. This is a code used by the IRS to classify the type of business being operated. If you do not know the code, you have two options:
- You can select the PDF Icon to view an entire list of activity codes, or
- You can select the Magnifying Icon to search by category. If you search by category, double-click on the business code that represents the type of business and the code will fill in automatically for you.
- Input the heading information in the Schedule C Data Entry Menu. This will include the name of the business, the business address, and the zip code. The city and state information will fill in automatically based on the zip code that is entered.
- At the Schedule C 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
At this point, you must determine whether or not this return requires Form 4562, Depreciation and Amortization (Including Information on Listed Property) for these vehicles. Form 4562 is required if you are using actual expenses and are depreciating the vehicles and/or claiming a Section 179 deduction. In that case, each vehicle's mileage and actual expenses will both be entered via the depreciation module (see below), and the program will calculate both the depreciation and the allowable expenses.
Form 4562 is also generally required for listed property, even if you are using standard mileage.
If standard mileage will be used and Form 4562 is not required to be used,
- 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,
- Car & Truck
- Car & Truck (Std Mileage Rate - Form 4562)
- Enter/Edit Vehicles
If actual expenses will be used,
- Car & Truck
- Car & Truck (Actual Expenses)
- Select New
- Enter Vehicle Information
If depreciation is being calculated,
- 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 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,
- Auto & Travel
- Car & Truck (Std Mileage Rate - Form 4562)
- Enter/Edit Vehicles
- Select New
- Enter Vehicle Information
If actual expenses will be used,
- Auto & Travel
- Car & Truck (Actual Expenses)
- Select New
- Enter Vehicle Information
If depreciation is being calculated,
- 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,
- Car & Truck
- Car & Truck (Std Mileage Rate - Form 4562)
- Enter/Edit Vehicles
If actual expenses will be used,
- Car & Truck
- Car & Truck (Actual Expenses)
- Select New
- Enter Vehicle Information
If depreciation is being calculated,
- 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:
