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7 min read March 24, 2022 • Block Advisors Driving and maintaining a vehicle as part of your business can mean added car expenses. Luckily, you can offset those costs by writing off a car 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:
Knowing which option to take will depend on your unique situation. The first step is determining whether you qualify. Business vehicle write off: who qualifies?The Internal Revenue Service identifies taxpayers who qualify to claim a business vehicle write off as:
For this post, we’ll focus on the first type mentioned and cover how to write off a car 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. Have questions about whether you qualify for the deduction? Talk with a trusted Block Advisors certified small business tax pro to get the answers you need. Business vehicle tax deduction: standard mileage rate vs. actual expense methodTwo 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 methods. Let’s look at these methods to see which one works best for you. Standard mileage rateThe standard mileage rate lets you claim the business vehicle tax deduction for every qualified business mile you drive. Self-employed individuals can claim 56 cents per mile in 2021 for miles driven for work. In 2022, the rate increased to 58.5 cents per mile January 1 – June 30 and then again to 62.5 cents per mile July 1 – December 31. Multiple rate hikes in one year are rare, but occasionally do happen. If you drive frequently for business, the amount can add up. For example, if you drove 8,000 business miles in 2021, you would multiply that number by the business mileage rate. As a self-employed individual, you would have a tax deduction of $4,480. 8,000 miles × $0.56/mile = $4,480 What are business miles? Business miles include all miles driven for professional purposes, with a few exceptions. What counts:
What doesn’t count:
You also can claim tolls and parking fees with 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. You should include the number of miles per trip, where you went, the date, and the business purpose. 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 methodThe 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 walk through 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:
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. 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 2021 standard mileage rate, simply multiply 8,000 miles times a rate of 56 cents per mile. You get a total of $4,480. (This is the rate for self-employed individuals and certain types of employees. Other groups use different rates.) 8,000 miles × $0.56/mile = $4,480 Then, compare the actual expense method calculation of $3,600 with the standard mileage rate of $4,480. This year, the standard mileage rate would be best for the tax deduction. But keep in mind, factoring in depreciation or changing other variables may change which method reduces your tax bill most. $3,600 < $4,480 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 cannot write off the purchase price in any year you claim a standard mileage rate deduction. Section 179 of the tax code lets you deduct some or all the purchase price of the car in the year you bought it, but with limits. For instance, you must use the car at least 50% of the time for business 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. 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 claimed the Section 179 deduction or a bonus depreciation deduction. How to write off a car for business use: the forms you’ll needHere’s a quick rundown of the forms to use to write off a car for business on your tax return:
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? Our Block Advisors small business certified tax pros 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. Make an appointment. Can I write off a car purchase for my business?You can write off part or all of the purchase price of a new or "new to you" car or truck for your business by taking a section 179 deduction. This special deduction allows you to deduct up to the entire cost of the vehicle in the first year you use it if you are using it primarily for business purposes.
How much of a car can you write off as a business expense?Self-employed individuals can claim 56 cents per mile in 2021 for miles driven for work. In 2022, the rate increased to 58.5 cents per mile January 1 – June 30 and then again to 62.5 cents per mile July 1 – December 31.
Can I deduct the purchase of a vehicle for my business 2022?In most cases, if you buy or lease a vehicle and only use it for business purposes, you can deduct the entire cost of its operation and ownership. However, if you also operate the vehicle for personal use, you may only deduct expenses incurred when using it for business.
Can you write off car payments for LLC?Can my LLC deduct the cost of a car? Yes. A Section 179 deduction allows you to deduct part of or the entire cost of your LLC's vehicle.
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Buying a car for business tax write off
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