When calculating your deduction for car expenses used for business purposes on your 2024 tax return, the IRS provides two main options: the standard mileage rate and the actual expense method.

Both options have their respective benefits and factors to consider, and selecting the appropriate one can significantly affect your tax savings.

Let us break down each method to help you make the best choice for your situation.

Standard Mileage Rate Method

The IRS annually determines the standard mileage rate, which is a set rate per mile. This rate encompasses all expenses related to your vehicle, such as depreciation, fuel, lubricants, insurance, and upkeep.

The standard mileage rate for 2024 is 67 cents per mile.

To use this method, you must:

  • Opt for the standard mileage rate in the first year the car is available for business use.
  • Record all mileage accrued for business purposes over the year.

This method’s most significant advantage is its simplicity. You don’t need to keep receipts for gas, repairs, or insuranceā€”just a detailed log of your business miles.

Actual Expense Method

Actual Expense Method

The actual expense method involves deducting the actual costs of operating the car for business purposes. This includes:

  • Gas and oil
  • Repairs and maintenance
  • Tires
  • Insurance
  • License and registration fees
  • Depreciation (or lease payments)

To use this method, you must:

  • Keep careful records and receipts for all of your car-related costs.
  • Find out how much of the vehicle is used for business and how much for personal use.

This method requires more meticulous record-keeping but can result in a larger deduction if your expenses are high and the car is primarily used for business.

Comparing the Two Methods

Comparing the Two Methods

To figure out which method is better, you should think about a few things:

  • Total Miles Driven: High mileage with low operating costs may favor the standard mileage rate.
  • Car Operating Costs: If repairs or insurance are expensive, the actual expense method might be better.
  • Vehicle Type: More expensive vehicles might yield higher depreciation deductions under the actual expense method.
  • Record-Keeping: The standard mileage rate is more straightforward if you prefer minimal paperwork.

Example Scenario

Imagine you drove 15,000 miles for business in 2024. Using the standard mileage rate of 67 cents, your deduction would be $10,050 (15,000 miles x $0.67).

If your expenses totaled $12,000 and 75% of the vehicle’s use was for business, your deduction would be $9,000 ($12,000 x 75%).

Making the Choice

It is essential to compare the two ways to find the one that gives you the most significant deduction.

However, once you decide on a method for a particular vehicle, you usually have to stick with it for as long as the car lasts.

Conclusion

Choosing between the standard mileage rate and the actual expense method for your 2024 car expense deduction depends on your circumstances. Consider how much your car costs, how often you use it, and how willing you are to keep detailed records.

Usually, you should figure out your deduction both ways to see which one saves you the most money on taxes

Remember, tax laws and rates can change, so before deciding, check the latest IRS standards for 2024 or consult with a tax professional.