How To Write Off A Car For Business

If you use your car or truck to do business, you may be able to claim the mileage and wear and tear as a business expense to reduce your income tax.

The Internal Revenue Service allows businesses to write off the expenses associated with a business-purposed vehicle from their annual income tax. This includes the cost of the car itself as well as other expenses like gas or service costs.

Here’s how to use the tax write off for a car to increase your business’s bottom line.

Car Tax Write-Off Methods

Some businesses have one or more vehicles that are 100% dedicated to business use — for these cars or trucks the entire ownership cost can be written off, with certain restrictions. Proprietors who use their car for both business and personal use can one of two methods to calculate their business write-off, the standard mileage rate or the actual expense method.

The Standard Mileage Rate Method

Perhaps the easiest way to write off your car for business is to track all the miles you drove it in the conducting of your business. The old school method for tracking mileage is a simple legal pad noting odometer readings, but there are now motion-sensitive apps that can track your business mileage automatically.

Each year the IRS sets its business mileage rate, which is the amount per mile that can be written off for the current tax year. In 2023, the business mileage rate is 65.5 cents per mile. So if you track 1,200 miles of business use on your car for 2023, your annual write-off is 1,200 miles x $0.655 = $786.

Note that if you want to use the standard mileage rate in any year, you must have used it in the first year you claimed your car as business write-off. In subsequent years you can use either the standard mileage or the actual expense method.

If you use the standard mileage rate in the first year of claiming a deduction on a leased vehicle, you must use the same method each year until the lease expires.

The Actual Expense Method

This method works just as it sounds — you calculate all of the expenses associated with the use of your vehicle during the year and deduct a percentage of that amount based on how much it was used for business.

The actual expense method is trickier because instead of just tracking your mileage, you must also be able to verify every car-associated expense with receipts and payment records. However, you might find you get a bigger deduction for your efforts.

Some examples of typical expenses that are usually tracked and deducted are:

• Gas
• Depreciation*
• Repairs 
• Lease payments
• Registration and license fees
• Insurance
• Maintenance (such as oil changes)
• Tolls
• Parking garage fees
• Interest portion of car payments

*A note on depreciation: The IRS will allow you to write off your vehicle’s loss of value, or depreciation. However, this loss must be spread out over 5 years. And again, only the percentage of use tied to your business is applicable.

You might need an accountant or tax professional to determine this amount because they will need to use the Modified Accelerated Cost Recovery System (MACRS).

MACRS is the name of the tax rules for recovering through depreciation the deductions in the cost of property used in a trade or business or to produce income. The maximum amount you can deduct is limited, depending on the year you placed your car in service.

What Qualifies As Business Miles?

We’ve discussed how you need to track business miles every day by keeping a log or using an app on your mobile device. But what qualifies as business mileage and what does not? Here are some distinctions:

What counts:

• Driving from your office to meet with clients.
• Driving from home to the airport and back for a business trip.
• 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. 

Who Can Write Off A Car As A Business Expense?

Generally, if you're a business owner, or self-employed, you can deduct your business-related car expenses using a Schedule C (Form 1040) Profit or Loss from Business. If you're a farmer, you can use a Schedule F (Form 1040) Profit or Loss from Farming to deduct your farming-related vehicle expenses.

Here are some of the broad categories of self-employment that the IRS qualifies for these deductions:

• Sole proprietors or freelancers: Unless they have incorporated their business, the IRS considers anyone who works for themselves a sole proprietor. A sole proprietorship is a non-registered, unincorporated business run solely by one individual proprietor with no distinction between the business and the owner. The owner of a sole proprietorship is entitled to all profits but is also responsible for the business's debts, losses, and liabilities.
• Owners of limited liability corporations (LLCs): An LLC is similar to a sole proprietorship and in fact may be just one person, but it has key differences. An LLC is a business entity type that allows business owners to take advantage of the taxation of a sole proprietorship and the liability of a corporation, meaning the proprietor gets extra protection from the business’s debts, losses and liabilities.
• Certain government officials: Even if they are not considered a sole proprietor, certain government employees who work on a fee basis can write off their car expenses incurred in the performance of their job.
• U.S. Armed Forces reservists: Reservists in the U.S. armed forces can use the vehicle deduction for any personal vehicle use in the performance of their duties, such as travel to training sites.

Additional Tax Implications Of Writing Off A Car For Business

If you have to make a significant investment in a vehicle, such as a heavy truck, to get your business up and running, you might qualify for a 179 deduction. Section 179 is a tax deduction that allows businesses to write off all or part of the cost of qualified property and equipment, including a vehicle, during the first year it was purchased and placed into service.

The key to a 179 deduction is it frontloads tax relief to a fledgling business. Compared to the standard straight-line depreciation, which businesses use to write off a small portion of qualified property over many years, Section 179 allows a company to deduct the entire cost of an eligible purchase in a single year. 

There are limits on the use of the 179 deduction, so before counting on it and making a big investment for your business, consult a tax professional to make sure you qualify.

The Bottom Line

All of the costs, fees and other payments you incur while using your personal car or truck for work are legitimate business expenses. These can be deducted from your company’s income and therefore reduce your business’s income tax. Your tax adviser can help you accurately calculate your deduction, but the easiest way to start is to simply log every mile of business use.

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