If you are self-employed and use your personal vehicle for business purposes, you can usually deduct your business expenses for that vehicle. You generally can choose from two ways of deducting: either claim the standard mileage rate, or report the actual expenses incurred while carrying out business-related activities.
Claiming the standard mileage rate is the simpler option. For 2020, the rate is 57.5 cents per mile.
With the mileage rate, you won’t be able to claim any actual car expenses for the year. You cannot also claim lease payments, fuel, insurance and vehicle registration fees. Also, if you use your vehicle for both business and personal use, you can deduct only the business miles.
To use the standard mileage rate for your vehicle, you should use it in the first year that your vehicle is available for use in your business. In later years, you can choose to use either the standard mileage rate or actual expenses. Lease vehicles are treated a little differently: if the standard mileage rate is the preferred method, you’ll have to use that method for the entire lease period.
Once you’ve settled on the standard mileage rate for your vehicle on your return, you can’t revoke the choice for that year. For example, if you claim the standard mileage rate and your return is accepted, if you have to amend that return for some reason, the standard mileage rate has to be used on the amended return too. You can, however, switch to the expense method on next year’s return.
To claim actual vehicle expenses, you can include:
As with the standard mileage rate, you must divide your expenses between business and personal use.
If you’re an employee, vehicle expenses of any kind are not deductible, even if you use your personal vehicle for business purposes, due to the Tax Cuts and Jobs Act of 2017.
Self-employed taxpayers may deduct car loan interest, provided they deduct only that portion related to business use of the vehicle.