You might need a car to drive the kids to school or commute to work, but if you use your car only for personal use, you can't take a tax deduction for any expenses associated with operating it. Business use of your car is a different story. You can usually write off amounts associated with the business use of your vehicle, regardless of whether you own or lease the car.
Business Use of Car
Only the portion of your leased vehicle that you use for business purposes is tax-deductible. The Internal Revenue Service does not consider commuting to and from work to be business use of your car, but it does include using your car to travel between two business destinations, one of which can be your regular place of business, according to the Small Business Administration. If you use your leased vehicle 100 percent for business purposes, you can write off 100 percent of your expenses. If you use your leased car for both business and personal use, you can deduct only the percentage of expenses that corresponds to your business usage.
Business vs. Personal
One simple method of determining the percentage of your business use of your leased car is to keep a mileage log. The IRS doesn't specify any particular type of record, as long as it is accurate and understandable should you have to document your expenses in case of an audit. Add up your total business miles, then divide that number by the total miles driven for the year to determine the percentage of business usage. Multiple your total expenses by the business use percentage to determine the amount of your deductible expenses.
Employee Business Expenses
If you want to take a write-off for operating your leased vehicle for business purposes as an employee, you'll have to itemize your deductions. Add your business use of car expenses to your other unreimbursed employee business expenses and report the total amount on Line 21 of Schedule A, Form 1040. Unreimbursed employee business expenses, including business use of car, are subject to the IRS' 2 percent rule. You can deduct only the amount of those expenses that exceeds 2 percent of your adjusted gross income.
Self-Employed Business Use
If you used your leased car as part of a business you own, you should report your expenses on Schedule C, Form 1040. All of your qualifying business car expenses are deductible, regardless of whether you itemize your deductions or claim the standard deduction.
Actual Expenses vs. Standard Mileage Rate
You can choose between deducting your actual expenses, which include your lease payments, auto insurance, fuel, maintenance, repairs, tires and other operating expenses, or taking the standard mileage deduction, which was 53.5 cents per mile for business miles for the 2017 tax year. You can add parking fees and tolls to either method. If you use the actual expenses method the first year you use your leased vehicle for business purposes, you must use that method for the life of the lease. If you use the standard mileage method the first year, you can change between methods during subsequent years.
- Internal Revenue Service: Topic 510 - Business Use of Car
- Internal Revenue Service: Topic 514 - Employee Business Expenses
- Internal Revenue Service: Publication 463, Leasing a Car
- Small Business Administration: Using Your Personal Vehicle for Business Purposes
- Internal Revenue Service: Schedule A
- Internal Revenue Service: Schedule C
- Internal Revenue Service: 2017 Standard Mileage Rates for Business, Medical and Moving Announced
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