I use my car for business. Can I deduct my car expenses on my tax return?

In general, yes. You can deduct the business-use portion of your car expenses on your tax return. However, there are several issues to keep in mind.

  • Commuting costs are never deductible. So if you work for a company and you travel to and from your workplace, these are personal expenses and are not deductible. Also, if you work for yourself and you have an office separate from your home, the travel to and from that office is, again, a personal expense and not deductible.
  • If you do deduct car expenses, you must maintain adequate records or other corroborative evidence to support the business portion of auto expense. To meet this requirement, you should maintain an account book or log (or similar statement of expense or trip sheet) that establishes each business expense. You must substantiate by adequate records or sufficient evidence (1) the amount of the expenditure (or the number of miles traveled), (2) the time and place of use, (3) the business purpose, and (4) the business relationship.
  • You can either deduct the actual costs of the vehicle operation (such as gas, insurance, maintenance, and depreciation) or deduct a standard mileage rate (for 2009 this was $0.55 per mile; for 2010 it is $0.50 per mile).

    Examples
    • If you drove 10,000 total miles and 4,000 of these miles were business related, the standard mileage deduction for 2010 would be $2,000 (4,000 business miles times $0.50 per mile).
    • Let's say you spent $1,000 total on gas, $800 on insurance, $1,500 on maintenance, and determined that the amount of depreciation was $3,060. Your total, then, would be $6,360. We've already established that your business use is 40% (4,000 out of 10,000 miles). So take 40% of $6,360 and your deduction would be $2,544. Under this scenario, of course, you'd want to use the actual auto expenses as the deduction, rather than the standard mileage deduction. To do that, though, you would have to maintain records of all the actual costs.