What are vehicle tax deductions?
Vehicle tax deductions allow businesses to write off the costs of operating a vehicle for business purposes. Whether you drive your own car or a company vehicle, you can deduct mileage or actual expenses to lower your taxable income. Keeping accurate records of trips, fuel, and maintenance is key to claiming these deductions correctly.
What are vehicle tax deductions?
Vehicle tax deductions cover the expenses associated with using a car, truck, or van for business operations. This can include travel to meet clients, deliver products, or visit job sites. The IRS lets you choose between two deduction methods, standard mileage or actual expenses, to determine your total deductible amount each year.
How to categorize vehicle expenses
- Record under Operating Expenses on your income statement.
- Use a dedicated “Vehicle Expenses” or “Auto Expenses” account in your chart of accounts.
- Separate business and personal use; only the business-use percentage is deductible.
- For owned business vehicles, track costs such as fuel, maintenance, registration, and insurance.
- For leased vehicles, record lease payments as a business expense.
- Maintain a mileage log showing the date, destination, purpose, and miles driven for each trip.
Examples of deductible vehicle expenses
- Fuel and oil changes.
- Repairs, maintenance, and tire replacements.
- Auto insurance premiums.
- Vehicle registration and inspection fees.
- Lease payments or depreciation (if owned).
- Parking fees and tolls incurred during business trips.
- Interest on a car loan (if the vehicle is used for business).
Tax rules and deduction methods
- Standard Mileage Method: Deduct a fixed rate per mile driven for business (for 2025, check the current IRS rate). This covers gas, maintenance, insurance, and depreciation.
- Actual Expense Method: Deduct actual costs such as gas, repairs, insurance, and depreciation, multiplied by the percentage of business use.
- You can’t use both methods for the same vehicle in the same year, though you can switch in later years with limitations.
- Commuting from home to a regular workplace is not deductible; only business-related trips qualify.
- Self-employed individuals claim vehicle deductions on Schedule C; employees typically cannot deduct unreimbursed vehicle expenses.
- Keep detailed records and receipts; the IRS requires documentation to substantiate any deduction claims.
