If you use your vehicle for business driving, there are two methods that can be used to compute your vehicle expense deduction:
- the standard mileage rate is generally easier to use and doesn't require you to keep as many records; however, it's not available to everyone. It will generally be the preferred method if you do relatively little business driving.
- the actual cost method may result in a larger deduction, particularly with a relatively expensive car; however, the burden of keeping records for every penny you spend on the car may cause more trouble than the deduction is worth.
- if you lease your car you can use either of these methods, but some special rules apply.
Ideally, each year you (or your accountant) should compute your deduction under both the standard mileage rate and the actual cost methods, and compare the results. Then, use the method that gives you the largest deduction in that particular year.
Remember that whichever method you choose, you may have a taxable gain when you sell or otherwise dispose of a vehicle used in your business.