The IRS allows you to use one of the following methods to deduct the cost of operating your car as a business vehicle:
- The standard mileage rate method
- The actual expenses method
Standard mileage rate method means you keep track of the miles you drive for business reasons, and that you don’t deduct the cost and upkeep of the vehicle itself. (The mileage rate averages out the costs of using your car for business.)
Actual expenses method is just like it sounds. You get to deduct what it takes to keep your vehicle roadworthy. This can include gas, oil, repairs, tires, car insurance, registration fees, licenses, and depreciation (or lease payments). Keep in mind though that the deduction is proportional. If you drive your car 60% for personal use and 40% for business, your deduction would be 40% of the total of actual expenses.
In other words, if you use your car as part of your work and you use it only for business, you can deduct the entire cost of using it. However, if you use your car for both business and personal purposes, you can only deduct the cost of its business use.