Getting Ready to Prepare Taxes – Auto Expense

Wow!  2022 already?  What happened to 2021?  As I get older, it really does become a blur.

I am going to do a multi-part series on getting ready to prepare your tax information.  This week, we tackle auto expenses.

There are many reasons to use your auto for some tax deductible purpose.  The first and most obvious is…  drum roll please… a business.  Duh!  That’s obvious.  But wait, there is more.  If you have at least one rental, you could use your auto in managing it.  If you have a farm operation (raise livestock, chickens, goats, rabbits, etc. for commercial purposes), you will probably use your auto in some way.  There is one more that most folks don’t know about.  Statutory Employees.  (Truck Drivers, Life Insurance Agents, or a traveling salesperson.)  To be a Statutory Employee, you must be in one of those specific employment situations AND your employer must mark you as a Statutory Employee on your W-2.

Everybody else who uses their vehicle for their employment doesn’t get to deduct anything right now.  In 2025, Miscellaneous Itemized Deductions are coming back, which includes “Employee Business Expenses.”  In the mean time, just make an arrangement with your employer to be reimbursed by them for the use of your vehicle. 

So, first off, you need to get in the habit of keeping some sort of mileage log.  Daily is best, weekly still works, but not as good if you are audited.  Simple and fast solution?  Keep a wall calendar where you put your car keys.  Every night when you walk in the door, hang your keys, then write how many business miles you drove.  Another method, keep a notepad in your glove box.  Every time you fill up your gas tank, look at the mileage indicator, write that in your notebook and indicate how many of those miles were for business purposes.  (Don’t forget to reset the mileage tracker.) 

Whenever you start deducting auto expenses on a particular vehicle, you get to choose whether you want to ALWAYS deduct actual expenses or deduct the standard mileage rate (currently 56 cents a mile).  No mixing it up.  Whatever method you choose the first year of a vehicle is the one you have to use for the life of that vehicle.  So, if taking actual expenses, you will need to have a system for keeping track of all related costs to maintain a vehicle.  Gas, oil, repairs, registration, insurance, finance costs, washes, etc.

Give your business miles (and total miles) along with actual expenses (if applicable) to your tax preparer, or enter it into your tax preparation software.  If you are really still in the dark ages and hand prepare your own tax return, you will need to keep a separate sheet showing how you computed the deduction, just enter the computed expense on the appropriate line.

Have you heard?  Job 13:18 says, “Behold, I have prepared my case; I know that I shall be in the right.”

Kelly Bullis is a Certified Public Accountant in Carson City.  Contact him at 882-4459.  On the web at BullisAndCo.com  Also on Facebook.