Life changes
You Bought a Business Vehicle: The Tax Rules to Know
A vehicle can be one of the larger deductions a small business takes, but the method you choose in the first year shapes every year after. It is worth deciding on purpose.
Reviewed by LaToya Clark-Thompson, FounderLast updated
Two ways to deduct a vehicle
Standard mileage rate
You multiply business miles by the IRS standard mileage rate for the year. It covers gas, maintenance, insurance and depreciation in one figure. Parking, tolls and the business share of loan interest (for self-employed owners) are added on top. It is simple, and the records are mainly the mileage log.
Actual expenses
You add up the real costs of the vehicle, including fuel, repairs, insurance, registration, interest and depreciation, and deduct the business share based on business miles over total miles. It takes more record keeping and can produce a larger deduction for an expensive or heavily used vehicle.
The first-year choice locks in
If you want the option of the standard mileage rate for a vehicle you own, you generally have to use it in the first year the vehicle is used in the business. You can switch to actual expenses later. If you start with actual expenses and take accelerated depreciation, you generally cannot switch to the standard mileage rate for that vehicle. That is why the first year deserves a real comparison, not a guess.
Depreciation, Section 179 and bonus depreciation
With actual expenses, the cost of the vehicle is recovered through depreciation on Form 4562. Section 179 and bonus depreciation can let you deduct much more of it in the first year, but only when the vehicle is used for business more than half the time. Passenger cars and light trucks are subject to annual depreciation caps. Heavier trucks, vans and some large SUVs, judged by gross vehicle weight rating, follow different and often more generous rules. These limits and the bonus depreciation rules have changed in recent law, so we check the current rules for your vehicle when the return is prepared.
A large first-year deduction is not free money. If business use later drops to half or less, part of it can be recaptured as income, and selling the vehicle can produce taxable gain. Big write-offs belong in a tax planning conversation, not a last-minute purchase decision.
The records you need
- A mileage log kept as you go: date, destination, business purpose and miles. Apps that track trips work well
- Odometer readings at the start and end of each year
- The purchase or lease agreement and the bill of sale
- Loan statements showing interest paid
- Receipts for fuel, repairs, insurance and registration if you use actual expenses
Commuting from home to a regular workplace is not business mileage. The IRS asks about written records directly on Schedule C, and vehicle deductions are among the items it checks most often. See IRS audit red flags.
If your business is an S corporation or LLC
Who owns the vehicle matters. An S corporation can own it and deduct it directly, with personal use by the owner handled through payroll, or you can own it personally and be reimbursed for business miles under an accountable plan. Each has paperwork the other does not. If you are weighing an S corp, see is it time for an S corp.
Bring the purchase documents, your mileage log and loan statements, and we will compare both methods for the first year before the return is filed. Our tax preparation and bookkeeping services keep the vehicle records consistent year to year, and the business deduction checklists list what else to gather.
Frequently asked questions
Is it better to take mileage or actual expenses for a business vehicle?
It depends on the vehicle’s cost, how much you drive for business and how many records you want to keep. The standard mileage rate is simpler and often favors inexpensive cars driven many miles. Actual expenses often favor costlier or heavier vehicles. Because the first year can lock you in, compare both before you file. Our guide to small business deductions has more.
Can I write off the full cost of a truck for my business?
Sometimes, through Section 179 or bonus depreciation, but only if the truck is used for business more than half the time, and passenger vehicles are capped each year. Heavier trucks and vans can qualify for more. Deducting it all in one year means smaller deductions later and possible recapture if business use drops or you sell. Plan it before you buy.
Do I really need a mileage log?
Yes. Without written records made at or near the time of each trip, the IRS can disallow the vehicle deduction entirely, whichever method you use. Schedule C asks directly whether you have written evidence. A simple app or notebook with the date, purpose and miles for each trip, plus yearly odometer readings, is enough to support it.
Can I deduct my car if I use it for business and personal driving?
Only the business share. Divide business miles by total miles for the year to find the business-use portion, then apply it to your expenses or depreciation. Commuting to your regular workplace counts as personal. If business use is half or less, accelerated depreciation such as Section 179 is not available, and you use slower straight-line depreciation instead.
Not the question you had? The full tax FAQ covers more ground, and our client reviews say what the work is actually like.
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