Everything you Need to Know about Vehicle Tax Writeoffs

Reading Time: 5 minutes

A vehicle is one of the costliest things to possess, both as far as a beginning venture and progressing upkeep costs. Luckily, there are successful ways of counterbalancing these expenses with tax credits and deductions.

If you are an entrepreneur or independently employed, you may find that buying and utilizing a vehicle can be expensive. However, it permits you to deduct specific vehicle costs utilized for sensible business purposes on your tax forms.

This article discusses three unique situations of owning a vehicle – personal financed vehicles, organizational financed vehicles, and rented vehicles.

We have also discussed vehicle taxation processes and how you may deduct your taxable income while using some of the methods mentioned below.

Vehicle Expenditure Deduction Methods

Vehicle Expenditure Deduction Methods

For car expenditure deductions, you have the option of using the actual expenses method or the standard mileage rate method. People use both the types by understanding their own situations and preferences.

However, the general overview is mentioned below:

  • Actual Expenses Method
    You may adopt the actual expense method if you anticipate having significant operational expenditures (maintenance, tires, repairs, etc.).

  • Standard Mileage Rate Method.
    You may use the actual expense strategy for more costly automobiles, trucks, SUVs, and minivans. The standard mileage rate technique is simpler to use, though.

Type 1: Standard Mileage Rate Method

For each mile you drive for business purposes, you may deduct a specific amount of it on your tax forms.

The standard mileage rate asks you to keep a note of how many miles you go annually and multiply that amount by the average cost per mile. You may claim this amount on your tax for deductions.

Moreover, the standard mileage rate is continuously updated by the IRS, and as of 2022, it is 62.5 cents per mile or 0.625 dollars per mile.

In the following situations, standard mileage rates are available:

  • Maintenance
  • Petrol
  • Oil
  • Repairs

In the following situations, standard mileage rates are NOT available:

  • Utilizing a rented vehicle (taxi, etc.)
  • When operating more than five cars at once (e.g., fleet operation)
  • You are qualified for compensation as a local postal carrier.

Type 2: Actual Expense Method

This is the second IRS method in which you may claim some of the deductions while using your vehicle for business purposes.

If you decide to use the actual expense approach, you will require thorough records or proof of business-related costs like:

  • Maintenance
  • Rent of Garage
  • Petrol
  • Rubber Tyres
  • Parking costs
  • Rent with depreciation cost
  • enrollment fee
  • License
  • Insurance

Regardless of the technique you use, you must divide the costs between personal and commercial use (if business use is less than 100 percent).

Different Vehicles, Different Tax Write-Offs

Owning a Personal Car

This is the most pervasive case, and it applies to the majority of freelancers and small company owners.

If you have a private car that you use sometimes for work travel, you cannot refuse the automobile payment if you borrowed money to buy this vehicle. However, you can deduct a part of the interest on your auto loan.

Loan interest is seen as a vehicle-related business expenditure, much like petrol and maintenance. The IRS provides two alternatives for depreciating it, the actual expense approach and the standard mileage method (explained in the detail mentioned above), as it does for other auto-related costs.

Vehicle Financed through Business

What if your vehicle is owned by your startup firm? Perhaps you exclusively work as a freelancer through an LLC, and the loan is in your company’s name.

Your company bank account can be used in this situation to make your monthly payments immediately.

Your car may be used for commercial reasons in this situation. After all, it’s doubtful that you’ll be using the work car to go grocery shopping or transport your kids.

You can deduct all of the money you spend on interest on your automobile loan as long as it is owned by the business and used only for business purposes. In this case, you may use the actual method expense method.

Rental Vehicles

You can deduct a portion of your vehicle loan interest if you buy an automobile for personal use and also use it for work.

Let’s take the example of a sole proprietor, entrepreneur, gig worker, or independent contractor. You will still utilize a car for certain business-related costs even if you buy it for personal use (such as freight, business trips, business trips, etc.). The monthly interest payment on a car loan can be subtracted from these expenses.

You cannot apply the tax credit to purchase a vehicle for personal use; you must use it for business. For instance, only 70% of the interest on your vehicle loan is tax deductible if your car is 30% personal and 70% commercial.

If you purchase the car strictly for business purposes, you can have a deductible car interest loan up to 100%.

In this case, you can use the actual method expense and standard mileage rate method.

Vehicles only for Business Purposes

1. Donation of a vehicle

Charitable donations are one of the most well-known deductions. In the event that you give cash or property to a certified foundation, you can deduct the worth of your donation on your charges.

There are a few limitations on what kinds of gifts qualify, so make certain to check with a duty proficient or the IRS prior to guaranteeing any charitable deductions.

Tax deductions may be available for donations of used automobiles, trucks, yachts, etc. You should only donate only to “qualified organizations” to claim deductions.

2. For medical reasons

An additional frequent deduction is for medical costs. Any medical costs that are not reimbursed and total more than 7.5 percent of your adjusted gross income are deductible. This covers things like going to the doctor, taking prescription medication, and staying in a hospital.

You can be qualified for a tax credit if you use your car to transport patients or your own dependents to a medical institution. Gas, transit, and parking are examples of medical costs that are eligible for tax deductions according to the IRS.

3. Transfer or displacement

The cost of moving is another possible deduction. You might be able to claim tax deductions for expenses like parking, travel, and accommodation if you’re relocating to a new area or searching for a job.

These are all “rolling expenditure deductions,” together. This covers expenses including truck rental fees, moving costs, and storage costs.

 Be aware that in order to qualify, you must travel at least 50 miles to your new work.

4. Use for business

Even if your automobile costs double your personal vehicle, you may write off practically all business-related costs if you’re self-employed. Make sure to differentiate between personal and professional travel.

Your costs must be connected to one or more of the following in order to be deducted:

  • Relocating within the taxpayer’s taxable region from one place of employment to another. (Regardless of the taxpayer’s domicile, the tax home is often defined as the entire city or broad region in which the taxpayer’s major place of business is situated.)
  • Visiting a client
  • Attend a meeting for business away from your usual place of employment.
  • If the taxpayer has one or more regular employment, they may move from their house to a temporary workspace. (These temporary workplaces may be located inside or outside the taxpayer’s tax jurisdiction.)

Making Most Out of Tax Deductions

The IRS permits you to discount various kinds of costs on your charges, and a vehicle is no exemption. By following a couple of basic steps, you may report these sums as operational expenses.

  1. The first and most well-known method for deducting vehicle costs is by taking a standard deduction. The tax code permits you to take a standard amount eliminated every year, no matter what kind of income you have.

    You might be able able to write off more frequent company costs using the standard deduction.
  2. Reporting it as business expenditure is a second approach to deduct the cost of your automobile from your taxes.

    Although self-employed people utilize this method of operation considerably more frequently than employees do, anyone can use it.

    This strategy allows you to submit both business-related and non-business-related automobile costs.

  3. Taking a deduction similar to first-year depreciation is one of the popular strategies for firms to benefit from this tax relief.

    You may deduct the whole amount up to the maximum amount with this strategy.

Taxation is highly complex and falsely claiming a deduction may lead your potential penalties as well. We strongly advise consulting a tax professional who holds years of expertise before filing any of your taxes.

Sign Up For Our Weekly Newsletter
Based on 107 reviews
powered by Google
Annie Phillips
Annie Phillips
12:35 10 Oct 21
Turn around time was amazing on the project I needed done. When you don’t understand all the different forms... communication is key and you will get that here. They are there to explain what and why you need it.read more
Meru Kapadia
Meru Kapadia
23:33 01 Oct 21
I usually don't write reviews much as everyone has different experiences, but definitely wanted to share the positive... experience I have had here and why I would recommend them to all my family, friends and co-workers.I got a referral for here from a friend, so thought of giving them a try over my old CPA firm. I have been going here for a couple years now and have to say they are top notch. They are always responsive and willing to work with me even when I am delayed. I generally like to ask a lot of questions and not once did I feel like they were annoyed by it and would very thoroughly and positively answer all my concerns with detail explanations. Even during the pandemic, they worked with me 100% virtual and it was seamless. Overall, I am very happy with this firm and will continue with them for the foreseeable future.read more
Kevan Shah
Kevan Shah
21:45 01 Oct 21
I’ve been going to them for 3 years now for multiple of my businesses. I changed to them after I had problems with my... previous CPA firm and I’m so glad I did! Best decision I ever made for my businesses. They have saved me thousands of dollars over the years as well as deal with my immensely complicated tax filling issues. No matter when I call, they always help answer all my questions (and trust me I have a lot) and put my mind at ease on all my concerns. I feel as if I am family the way they take care of me. The quality of their work has not changed; very consistent and professional. It is an understatement when I say I highly recommend them.read more
Maunil Shah
Maunil Shah
16:19 01 Oct 21
AKIF CPA is the best place for your tax needs! Saim has been easily available for my all my questions and concerns. ... Couldn’t ask for a better firm that provides excellent service and a familiarity with their clients. I always recommend family and friends to AKIF CPA!!read more
Shah Hussain
Shah Hussain
03:58 01 Oct 21
Hello AKIF CPA,I wanted to share my experience with you, your team and whomever may be reading this message. My most... humble thanks to you and your team for a being such great part of my success.You have done a fabulous job for us this year, and since you took over our books (during our most devastating times) you have literally taken weight off of our shoulders.Thanks for bringing everything up to date and also providing us with numbers or as you call it consultations, ahead of time so we could seal the holes.Great work!!!Shah H.read more
Sumit Dalwadi
Sumit Dalwadi
04:57 30 Sep 21
The professionals at Akif have been absolutely amazing! Quick to answer all the questions I had and always available... to offer their guidance.read more
Calvin R
Calvin R
20:21 29 Sep 21
I recommend these guys! I will be going back next year. They made everything simple and we understood what was... happening. There we issues with our taxes due to our previous accountant and these guys fixed everything. They answered our questions and service was always with a smile.read more
Ammoria Daniels
Ammoria Daniels
02:11 16 Sep 21
We contacted Akif with an urgent matter regarding corporate taxes. Akif immediately understood what was needed and... within days had everything ready to sign. The level of service we received was amazing and unmatched. Waqar expertise in trucking industry made our situation seamless. His communication was outstanding; I heard from him daily and could have been completed sooner if I was as fast as he was 😃 Highly recommended!read more
Joe Paneitz
Joe Paneitz
18:30 18 Aug 21
What an absolute pleasure to work with this CPA firm. My business is already seeing such a positive impact and growth.... I cannot believe I didn't connect with them sooner. This firm is helping in so many ways! 5 stars is an understatement! Thank you so much for your help AKIF CPAread more
Helptest ARCpoint Labs
Helptest ARCpoint Labs
15:02 18 Aug 21
The firm is quick, responsive, and has the latest technological software. Thus far, I have been with them for 3+ years... and will continue to work with them even after relocating. They make it easy even when I'm miles away. Would highly recommend them.read more
Luz Tipaz
Luz Tipaz
16:06 13 Jul 21
Saim and his team are the best CPAs in town. I have been their client for years. All started when I needed help with... company structure with multiple companies and then accounting and Taxes. I have been very happy ever since. Thank you AKIF CPA.read more
Maria perez
Maria perez
18:31 08 Jun 21
Me and my husband have been getting all of our personal Taxes, business Taxes, monthly bookkeeping, accounting and... payroll done with AKIF CPA. Recently, we had more stuff come up and had detailed analysis done on capital gains, single family rentals (SFR) and business disposition. You will only know how great this CPA company is until you have worked with them and given them a chance. Words can’t describe our experience. AKIF CPA gets the job done every time - very reliable, professional and affordable.read more
Afnaan Amin
Afnaan Amin
22:14 02 Jun 21
Very good experience, we had unique situation in regards to cross border income as Canadians currently residing in the... US. Income on both sides of the border through completely different channels. Everything was very easy and completed timely, I also had lots of random questions and Mohammad provided top notch service along the way and even after we finished our taxes!! Highly recommended.read more
Ryan Paton
Ryan Paton
10:56 08 May 21
I moved to the USA from Canada late 2018 as part of a promotion/relocation for work. For my 2019 returns, I used an... accounting firm recommended by the local Canadian social club in my city, which was a terrible experience. They were slow to respond to inquiries and would follow up in piecemeal requests which dragged out my return process over several months, often asking for information I had already provided.For the price I paid, I vowed to find better service. I found Mohammad online and decided to reach out. Mohammad was extremely responsive, took care of my US and Canadian returns as well as my wife's business returns in a timely manner. Overall, it was a very positive experience and I would recommend him to another in my situation.read more
Tuan Vo
Tuan Vo
01:59 20 Apr 21
I relocated to Texas from Alberta, Canada and needed a CPA to help me with my cross-border taxes as I was not happy... with the CPA that I used previously. During my interviewing process to find another CPA, I had good feedback from Mohammad as he was able to answer my questions regarding my unique tax situation with expertise, and importantly to me, in a timely manner. I decided to use his services for the current tax year and I have nothing but compliments for the work Mohammad provided. If you are in need of a professional cross-border CPA, I highly recommend reaching out to Mohammad Akif.read more
See All Reviews

Crypto Tax & Accounting Newsletter Signup


Cross-Border Tax Newsletter Signup