There are three times when you must choose the Actual Expense method instead of the Standard Mileage method for deducting your vehicle expenses:
- You used more than one vehicle in the same business simultaneously. Most small business folks won’t have a problem with this rule.
- You chose the Actual Expense method on this same vehicle in any prior years, and also claimed an accelerated depreciation method to deduct the cost of the vehicle. “Accelerated” means that you did not claim an equal depreciation deduction every year, but took a larger deduction in the first two years of ownership. The tax code allows you to choose between the two depreciation methods. If your small business is profitable and established, chances are you will have selected the accelerated depreciation to get a larger tax deduction at your first opportunity.
- You chose to use tax code Section 179 to write off all or part of the vehicle’s purchase price in the first year of ownership. (This condition is very similar to Number 2 above, but under a different tax code rule).
Note: No matter which method you choose, you must keep a mileage log for the business use of the vehicle. The MileCatcher app is good way to do this task.
Frederick W. Daily, J.D, LL. M (tax)