How to Write Off a Car for Business: A Tax Guide

If you’re a business owner and use your car for business purposes, you should claim it with your taxes to avoid missing out on valuable deductions. You can claim actual vehicle expenses or mileage deductions depending on your situation. 

Picking the correct method for your unique situation will maximize business savings and reduce taxes.

In this article, we’ll look at how to write off a car for business, the difference between the actual expense method and calculating the standard mileage rate deduction, and how to use accounting software to reduce business expenses this upcoming tax year. 

Even if you only use your car for business part-time, you’ll benefit from this vehicle tax deduction guide. 

Key Takeaways

• There are 2 methods of writing off a car for business: Claiming the standard mileage or calculating the actual expenses incurred by using the vehicle.
• You can write off the business use of most vehicles, including cars, pickup trucks, vans, and panel trucks. 
• The claimable mileage rate for the 2024 tax year is 67 cents per mile. 
• Self-employed individuals, small business owners, United States Army reservists, fee-based government officials, and qualified performing artists can claim some vehicle expenses on their taxes.
• Standard tax forms used to write off a car for business use are Schedule C, A, or E of Form 1040 or Form 2106, depending on your situation. 

Table of Contents

• What Qualifies as Business Mileage With the IRS?
• Method 1: Standard Mileage Rate
• Method 2: Actual Expenses
• Who Can Deduct Car Expenses?
• Section 179 for Business Vehicles
• How to Write Off a Car for Business Use: Necessary Forms
• Organize Your Car Expenses Easily With FreshBooks
• FAQs About How to Write Off a Car for Business

You can offset the cost of running and maintaining your vehicle by using 1 of the 2 IRS-approved options: The standard mileage rate and the actual expense method. Depending on how you’re using your car, one will give you a larger deduction than the other. We’ll go into the details below:  

What Qualifies as Business Mileage With the IRS?

The IRS has specific guidelines on what qualifies as business mileage. Business miles include:

• driving to meet a client 
• traveling to business meetings
• shopping for office supplies or other business-related errands like going to the bank or post office
• visiting your accountant or lawyer for business matters 

Commuting isn’t a valid business expense, so you can’t write off trips between work and home. The IRS considers any personal errands non-work-related, even if you’re on a business call while driving or stop at the store on the way home from a meeting.

You can claim tolls and parking fees separately, and all claims must have a business purpose. For example, if you have an appointment with your accountant and pay for parking at their office. 

Method 1: Standard Mileage Rate

Using the standard mileage rate method, you can write off vehicle-related business expenses based on the total mileage you’ve driven in your car. The IRS rate for the 2024 tax year is 67 cents per mile for using a car, van, pickup truck, or panel truck, including electric and hybrid vehicles. 

To use this method, you must choose to use it in the first year the vehicle is available to you, as this establishes it as your business vehicle (you may change this in later years if you wish). 

This method is ideal for those who:

• own the car (or are leasing it)
• are self-employed or own a small business
• use their vehicle for both business and personal use
• have a highly economical vehicle that costs little to operate

Most businesses track their annual mileage by keeping a logbook or using a dedicated mileage tracker app or spreadsheet to log every business-related trip, noting mileage, destination, date, and business purpose. Here are examples of how businesses might track mileage using the standard mileage rate:

Example 1 (On Paper)

Mary runs a catering business and has purchased a panel van to transport equipment and staff to and from various jobs. She also uses it to drive her kids to school and run errands. 

Every time Mary drives the vehicle for business use, she notes the date, odometer reading before and after work, and what she used the van for in a paper logbook that she later submits to her accountant along with her tax documents. 

Example 2 (With Accounting Software)

John sometimes delivers cakes from his bakery with his car, though he mainly drives it for personal use. Per IRS rules, he can claim the mileage for business-related trips.

John uses an app to track his mileage over the year, which includes photos of his odometer and a note outlining where he’s going and why. With the help of accounting software, John later calculates the total mileage to find his deduction amount before filing his taxes. Since he drove 14,300 miles during the year at 67 cents per mile, John can deduct $9,581.

Method 2: Actual Expenses 

The second business vehicle tax deduction method is the actual expenses method, which allows you to claim a tax deduction on a company car for a percentage of the actual cost you’ve spent to run the vehicle. If your car has high operating costs (e.g., if it uses a lot of gas and is an older model), the actual expenses method will likely be more beneficial to you than the mileage method. 

Some of the expenses you can deduct with this method include:

• gas and oil
• tire replacement
• licenses
• car insurance
• necessary repairs
• maintenance (e.g., regular oil changes)
• tolls and parking fees
• garage rental fees
• auto loan interest payment
• registration fees and taxes
• car depreciation 

Accurate record-keeping is essential to avoiding penalties and deduction losses from the IRS. 

To track your expenses, you might want to:

• Keep a log of your mileage that includes miles driven, the purpose of the trip, and the date.
• Save all receipts for any work done on your vehicle.
• Try an app or financial software to log and track everything in 1 place.

You can use the actual expenses method even if you use your personal vehicle for business reasons—but you’ll have to calculate the amount of your car used for business based on your mileage first. 

To find your deduction amount, add your total car expenses for the year and multiply by the percentage you used the car for business versus personal reasons. For example:

If, over the year, you paid $1,200 for car repairs, $600 for new tires, $2,000 in gas and maintenance, $500 for insurance, and $200 for car registration, you’d first add up these costs. 

$1,200 + $600 + $2,000 + $500 + $200 = $4,500

Now, find the percentage of business use for your car. If your total mileage for the year was 10,000 miles, but you only drove it for business purposes for 4,000, then: 

4,000 ÷10,000 = 0.4

0.4 x 100% = 40%

Now multiply the vehicle cost by the business use percentage to find your deduction amount. 

$4,500 x 40% = $1,800

While the actual expenses method is slightly more complicated, with more record keeping and math involved, maximizing your business deductions is often worth it. 

Who Can Deduct Car Expenses?

When determining whether you’re eligible to deduct the cost of your vehicle for business purposes, the IRS considers 3 criteria:

1. Your Occupation

The people who can claim a deduction based on business use of a car include self-employed individuals (contractors, gig workers, or freelancers), small business owners, United States Army reservists, fee-based government officials, and qualified performing artists. You likely don’t qualify for this deduction if you receive a W-2 for your work.

2. The Number of Cars You Have in Operation

If your business has 5 or more cars, this is considered a fleet, and you aren’t eligible for this tax deduction.

3. How You’re Using the Vehicle(s)

You must only claim vehicles used for business purposes, such as attending an out-of-town meeting, picking up work supplies and returning them to the workplace, visiting customers, and delivering products.

Section 179 for Business Vehicles 

Section 179 is a part of the tax code that allows business owners to deduct a large portion of the cost of their vehicle (or other tangible, business-related property) as an expense within the first year it’s in service.

If you’re claiming actual expenses, you may be able to write off some of the purchase price of a larger asset right away rather than capitalizing and depreciating it over time. There are some limits to the Section 179 deduction, including:

• It isn’t allowed if you’re using the mileage method.
• You must use the car for business at least 50% of the time.
• You can only deduct the percentage of the car you use for business.
• The vehicles must weigh over 6,000 pounds, or 3 tons, which excludes many passenger cars, SUVs, and smaller utility trucks.

You may also qualify to deduct some of the purchase price each following year by claiming depreciation due to general wear and tear.

Bonus depreciation may also be available within the first year you use the car for business if you meet specific government requirements found in section 168 (k)(2)(E)(ii) of the tax code. 

Don’t forget to recapture the depreciation deduction when you sell or trade in the car.

How to Write Off a Car for Business Use: Necessary Forms

Depending on your situation, you’ll need a few essential tax forms to write off a business vehicle. 

If You’re Self-Employed

If you’re a freelancer, a gig worker, or otherwise own your own business as a sole proprietor or have a single-member LLC (limited liability company), use Schedule C of Form 1040. 

If You’re Using the Vehicle for Volunteering

If you’re an individual traveling for volunteer work, use Schedule A of Form 1040. The mileage rate deduction for 2024 is 14 cents.

If You’re a Partner in a Multi-Member LLC

You may be able to deduct some unreimbursed partnership expenses using Schedule E of Form 1040.

If You’re Using Your Car for Work but Are Employed

If you’re a performing artist or work on a fee basis as a government employee and use your car for ordinary work within your job description, you can use Form 2106 to claim the vehicle expenses.

Organize Your Car Expenses Easily With FreshBooks 

Using software like FreshBooks will help you keep track of detailed records. FreshBooks simplifies the organization of car expenses for small businesses and self-employed individuals by offering expense tracking capabilities. You can upload your receipts directly, and the Mileage Tracker App keeps accurate daily records of the total miles you drive. 

With FreshBooks expense tracking software, you can streamline your tax preparation process and feel confident as you maximize your vehicle-related deductions in the tax year ahead. Try FreshBooks for free today and see how this powerful software can work for you.

FAQs About How to Write Off a Car for Business

Are you submitting a business vehicle tax deduction this year? Here are some frequently asked questions regarding eligible vehicles, what counts as business use, and how much of a car you can write off for business. 

Can 100% of a Vehicle Be Written off for Business?

No, but you may be able to write off a percentage of the purchase price and some expenses related to the vehicle if you meet specific IRS criteria. If you’re unsure, ask a tax professional how to deduct car expenses to maximize your return.

How Do You Write Off a 6,000-Pound Vehicle?

To write off a business vehicle that weighs over 6,000 pounds, you must use it for business at least 50% of the time and claim it using the Section 179 deduction of the IRS tax code. This section is limited to heavy-duty trucks and vehicles, so if you want to deduct car costs, make sure it’s heavy.

Can I Write Off Car Insurance?

Yes, if you use your car for business, you can deduct your car insurance, but you must calculate your taxes using the actual expenses method. Those who choose the standard mileage rate method cannot deduct their car insurance.

Can You Write Off a Car With an LLC?

Yes, small business owners with an LLC can write off business vehicles on their tax return, using either the standard mileage rate (cents per mile) or the actual car expenses method. 

How Much of a Company Car Can I Write Off?

Your business car deduction will depend on how much you use it for business purposes at the time of purchase and what kind of vehicle it is. While you won’t be able to write off the entire cost of the car in the first year, you may be able to deduct a large portion of the price and expenses of work-related driving. 

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