Business vehicle write off: Understanding your options

Driving and maintaining a vehicle as part of your business can mean added car expenses. Luckily, you can offset those costs by writing off car expenses as a business expense when you file your taxes.

Maybe you use your truck occasionally for your lawn business. Or perhaps you exclusively drive your minivan for catering jobs.

In either case, you have two options for a business vehicle tax deduction. You can use either of these methods:

• Standard mileage rate
• Actual expense method

Knowing which option to take will depend on your unique situation. The first step is determining whether you qualify.

Business vehicle write-off: Who can deduct car expenses?

The Internal Revenue Service (IRS) identifies taxpayers who qualify to claim a business vehicle write-off as:

• Self-employed individuals. Sole proprietors and owners of limited liability companies (LLCs) with a tax classification that allows pass-through income on Tax Form 1040 qualify for the write-off.
• Certain types of employees. Qualified performing artists, reservists in the U.S. armed forces, and fee-based state or local government officials qualify to claim the business vehicle write-off.
• Individuals traveling for volunteer work or medical appointments. These individuals can write off miles only for specific trips if they itemize deductions on Schedule A.

Read on and we’ll cover how business owners and self-employed individuals can write off eligible vehicles as a business expense.

Note: You can’t claim your car as a deduction if you use five or more cars. That’s considered a fleet. Also, if you are an employee and not the business owner, you can’t claim a business vehicle write-off at all, even if you aren’t fully reimbursed at the standard mileage rate.

Business vehicle tax deduction: standard mileage rate vs. actual expense method

Two options are available for the business vehicle tax deduction: standard mileage rate and actual expense method. To use the standard mileage rate, you must use this method the first year the car is used in a business. Then in later years, you may choose between the actual and standard mileage methods.

Let’s look at these methods to see which one works best for you.

Standard mileage rate

The standard mileage rate lets you claim the business vehicle tax deduction for every qualified business mile you drive.

Self-employed individuals can claim 65.5 cents per mile in 2023 for miles driven for work. In 2024, the rate increased to 67 cents per mile starting on January 1 and until further notice.

If you drive frequently for business, the amount can add up. For example, if you drove 8,000 business miles in 2023, you would multiply that number by the business mileage rate. As a self-employed individual, you would have a tax deduction of $5,240.

8,000 miles × $0.655/mile = $5,240

What are business miles?

Business miles include all miles driven for professional purposes, with a few exceptions.

What counts:

• Driving from your office to meet with clients.
• A trip to the bank, post office, or office supplies store.
• Traveling from the office to meet with your accountant or attorney.
• Driving from your main office location to other office locations.

What doesn’t count:

• You can’t claim the miles you commute to and from the office from your home. But, if your home is your main office location, trips from home do count as mileage.
• You can’t deduct personal use trips or errands.
• Making a work call while in the car does not count as business miles.

You also can claim tolls and parking fees if you use the standard mileage rate.

Recordkeeping

You must track your miles as written evidence of your business mileage. Keep a calendar in your car or log the miles on your phone. In your mileage log you should include the number of miles per trip, where you went, the date, and the business purpose. It’s important to keep an ongoing record of your trips rather than try to record your trips after time goes by.

You also need to record the total miles you drive during the year. Write down your odometer reading on the first day you use your car for business and the last day of your tax year.

Actual expense method

The actual expense method lets you claim a business car deduction for a percentage of the total amount you spend on your car. You simply need to keep track of the amounts you pay for your car throughout the year. What if you use your vehicle for personal and business use — like the example of a truck used occasionally for a lawn care business?

If your personal car sometimes doubles as a work car (for another example, you use it to drive for a rideshare company), you’ll need to calculate the business-use percentage based on the number of miles you drive for work.

Let’s learn how to write off a vehicle as a business expense. And, if you’re like the lawn care business owner, you can use the same steps to understand how to write off a truck for business!

You can deduct the following expenses:

• Repairs and maintenance
• Gas and oil
• Garage rent
• Car insurance
• Loan interest
• Registration fees and licenses
• Rental or lease payments
• Tires
• Tolls and parking
• Depreciation

Deduction Calculation Example

To calculate the deduction, you want to add up the deductible car expenses from the list above. Let’s say you paid $1,800 in repairs, $1,600 in gas, $600 for insurance, $450 for tires, and $50 for tolls and parking for your car. That comes to $4,500 in actual expenses.

$1,800 + $1,600 + $450 + $600 + $50 = $4,500

Next, figure the percentage of business use of the car. This amount is calculated based on the number of business miles on the car and the number of total miles. (See the standard mileage rate information above to understand what you can claim as business miles.) Let’s say you drove your car 8,000 miles for business, and your total mileage on the car was 10,000. The business use percentage would be 80%.

8,000 / 10,000 = 0.8

0.8 × 100% = 80%

Now, multiply the actual expenses times the percentage to get the deduction of $3,600.

$4,500 × 80% = $3,600

Another expense you may be able to include in the actual expense method is depreciation, which represents a set portion of the purchase price of the vehicle. Depreciation is explained below.

Should you use the standard mileage rate or the actual expense method?

You can do a simple calculation to determine what would be the best choice. Using the example above, you had 8,000 business miles. To figure the amount using the 2023 standard mileage rate, simply multiply 8,000 miles times a rate of 65.5 cents per mile. You get a total of $5,240.

Then, compare the actual expense method calculation of $3,600 with the standard mileage rate of $5,240. This year, the standard mileage rate would be best for the tax deduction. But keep in mind that factoring in depreciation or changing other variables may change which method reduces your tax bill most.

$3,600 < $5,240

Can I write off a vehicle purchase for business use?

If you claim actual expenses, you may qualify to write off a portion of the purchase price each year. You can’t write off the purchase price in any year you claim a standard mileage rate deduction. If you claim actual expenses, you may qualify to write off a portion of the purchase price each year through Section 179 expensing.

The Section 179 deduction lets you deduct some of the purchase price of the car in the year you bought it, but with limits. For instance, you must use the car for business at least 50% of the time, and you can only deduct the percentage of the car that you use for work.

Bonus depreciation may be available the first year the car is placed in service, but there is a first-year limit. (Related: What qualifies for bonus depreciation?)

If you can’t deduct the entire purchase price of the car, you have an option. You can claim depreciation every year for general wear and tear on the car, even if you claim the Section 179 deduction or a bonus depreciation deduction.

The maximum deduction (including bonus depreciation and Section 179) for a vehicle placed in service in 2023 is $20,200. If you don’t claim bonus depreciation, the maximum deduction falls to $12,200.

How to write off a car for business use: Forms you’ll need

Here’s a quick rundown of the forms to use to write off a car for business on your tax return:

• Self-employed individuals use Schedule C of Form 1040.
• Partners and members of multi-member LLCs use Schedule E to deduct qualifying unreimbursed partnership expenses.
• Certain types of employees use Form 2106.
• Individuals traveling for volunteer work or medical appointments use Schedule A.
• Everyone uses Schedule A to deduct personal property taxes.
• Those claiming depreciation use Form 4562.

Driving and maintaining a vehicle as part of your business can mean added car expenses. Luckily, you can offset those costs by writing off eligible vehicles as business expenses when going through your small business tax forms and filing your taxes.

Business car deductions can be complicated. We’re here to help.

Still have questions about how to write off a car, truck, or passenger vehicle as a business expense? The small business certified tax pros at Block Advisors have answers. We’ll help you determine your deductions and answer your important tax questions so you can get back to running your small business.

Need help beyond tax preparation? Our business formation, bookkeeping, payroll, and beneficial owner reporting services support your small business year-round.

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This article is for informational purposes only. The content may not constitute the most up-to-date information and should not be construed as legal advice.