If you use your car for business purposes, you may deduct a part of its cost of ownership and operation. These expenses must be deducted on Schedule C of the individual tax return.
You can generally figure the amount of your deductible car expense by using one of two methods: the standard mileage rate method or the actual expense method. If you qualify to use both methods, you may want to figure your deduction both ways before choosing a method to see which one gives you a larger deduction.
Standard Mileage Rate –
To use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business.
The standard mileage rate is set by the IRS every year (sometimes twice a year). In 2022, the rate is 58.5 cents for the first half of the year and 62.5 cents for the second half. You cannot deduct any other costs for the car except for parking fees and tolls. The method is very easy to use, you count how many miles your car has driven for business purposes and multiply them by the rate set by the IRS. For example, the total mileage for 2022 is 15,000 miles, the business mileage in the first half of the year is 4,000 miles, and in the second half is 5,000 miles. 4,000 miles * $0.585 + 5,000 miles *$0.625 = $2,340 + $3,125 =$5,465
Actual Expenses –
To use the actual expense method, you must determine what it costs to operate the car for the portion of the overall use of the car that's business use. Include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the portion of the total miles driven that are business miles.
For example, the total mileage for 2022 is 15,000 miles, the business mileage is 8,000 miles, the total cost of all expenses for the year is $ 6,000. You can deduct $3,600 ($6,000*(9,000/15,000)) of auto expenses on your Schedule C in 2022.
To confirm the business expenses for the car, the taxpayer, regardless of the method he uses, must have written evidence that support these expenses. The IRS requires keeping a mileage log which has information about the date, purpose of the trip, and the number of miles traveled. You can use a mileage tracking app that will automatically log and track miles: MilelQ, QuickBooks Self-Employed, Stride and others.