October 27, 2022

vehicles for business use

You can deduct vehicle expenses if you use your car for business purposes. You can even deduct the vehicle’s entire cost of ownership and operation, with some limitations, if it’s only used for business purposes. Tax implications can vary on this topic, so it’s important to understand the deduction rules when it comes to vehicles for business use. 

Which vehicles qualify? 

Cars, SUVs and trucks used for business activities qualify for tax deductions. However, if the vehicle is used as equipment, it is not eligible. This can include dump trucks and cranes. Additionally, the vehicle is also ineligible if it used for hire, like taxis or airport transport vans. 

Standard Mileage Rate vs. Actual Expenses 

There are two methods for calculating your deductible car expenses: using the standard mileage rate or calculating the actual expenses incurred. The standard mileage rate allows employees and self-employed individuals to deduct 58.5 cents per mile in the first half of 2022, and 62.5 cents per mile for the second half of 2022. These miles should only be counted if it was driven for business use only. In addition to the total number of business miles driven, the IRS will also request the number of total miles driven in the year. Using this method, you may also deduct auto loan interest, registration and property taxes, and parking and toll fees. 

The actual expenses method allows taxpayers to deduct all vehicle costs incurred including gas, oil, maintenance, repairs, tires, registration fees, licenses, auto loan interest, insurance, rental or lease payments, depreciation, garage rent and parking and toll fees. You would then calculate your business-use percentage of the vehicle to find the amount you can deduct. 

For example, let’s say your total mileage for the year was 15,000 miles and 12,000 of those miles were for business use, 6,000 in the first half of the year and 6,000 in the second half. Your eligible vehicle expenses for the year totaled $6,000. If you used the standard mileage rate for 2022, your deduction would be $7,260.  

6,000 miles x 58.5 cents (first half of 2022) = $3,510, plus 

6,000 miles x 62.5 cents (second half of 2022) = $3,750 for a total of $7,260 

If you calculated actual vehicle expenses, you could deduct $4,800. 

12,000 miles / 15,000 miles = 80% business use 

80% x $6,000 = $4,800  

In this case, it would be more beneficial to use the standard mileage rate rather than deducting all vehicle expenses. A good rule of thumb is to use the actual expenses method when you have vehicles with high operating costs and the standard mileage rate when you use vehicles with lower operating costs.  

Tax Relief for Businesses 

The rules for taking the standard mileage rate or calculating actual vehicle expenses are mostly straightforward. Another deduction for vehicles for business use is depreciation. You can deduct depreciation to account for general wear and tear of your vehicle. The rules surrounding depreciation can be very complex and it is always best to check with a knowledgeable tax preparer about what is allowed. Give Optima a call at 800-536-0734 for a free consultation with one of our knowledgeable tax professionals. 

If you’ve received a letter from the IRS and need help understanding what it means, you can analyze your IRS notice in three easy steps with the Optima® TAX APP.