Substantiation of Business-Related Car Expenses
Did you know that as a taxpayer, you can keep an exact record of the amount you pay for gasoline, insurance, and other costs to substantiate your automobile expenses? If you find calculating the operating and fixed costs for business purposes too complicated, you can also use the standard mileage rate method as a simplified way to compute deductions for automobile expenses. This could save you a lot of time and hassle! ( Code Sec. 274(d); Reg. §1.274-5(g) and (j); Rev. Proc. 2019-46).
Standard Mileage Rate. Under the standard mileage method, the taxpayer determines the allowable deduction by multiplying all the business miles driven during the year by the standard mileage rate. The standard mileage rate is 65.5 cents per mile for 2023 and 67.0 cents per mile for 2024 ( Notice 2023-3; Notice 2024-8). The business standard mileage rate cannot be used to claim a deduction for unreimbursed employee travel expenses for tax years beginning before 2026 ( ¶1079). However, a member of the National Guard or U.S. Armed Forces Reserves may claim an above-the-line deduction in calculating adjusted gross income (AGI) for certain travel expenses.
The standard mileage rate may be used by businesses, self-employed individuals, and employees in computing the deductible costs of operating automobiles they own or lease for business purposes. It may not be used to compute the deductible expenses of five or more automobiles owned or leased by a taxpayer and used simultaneously (a fleet operation). Using the standard mileage rate in the first year of business use is considered an election to exclude the car from depreciation. In determining the owner’s adjusted basis in the vehicle, depreciation is considered to have been allowed at the rate of 28 cents per mile for 2023 and 30 cents per mile for 2024 ( Notice 2023-3; Notice 2024-8).
Fixed and Variable Rate (FAVR) Method. The fixed and variable rate allowance (FAVR) also can be used to substantiate automobile expenses. An employer’s FAVR allowance includes a combination of payments such as a cents-per-mile rate to cover the employee’s variable operating costs (gas, oil, tires, etc.), plus a flat amount to cover the employee’s fixed costs (depreciation or lease payments, insurance, etc.). The maximum standard automobile cost for purposes of the FAVR allowance for passenger automobiles including trucks and vans is $60,800 for 2023 and $62,000 for 2024 ( Notice 2023-3; Notice 2024-8). At least five employees must be covered by an FAVR arrangement at all times during the calendar year, and at no time can the majority of covered employees be management employees. Additional requirements must also be met.
Postal Workers. Rural mail carriers receive a qualified reimbursement for expenses incurred for the use of their vehicles for collecting and delivering mail on a rural route. They are not allowed a deduction for tax years beginning before 2026 for their automobile expenses that exceed their qualified reimbursement. Qualified reimbursements above actual automobile expenses continue to be excluded from gross income.
