For most of us, tax season means poring over slips, receipts, and other documents to ensure we’ve claimed every possible tax break. However, one deduction many taxpayers miss yearly relates to using vehicles for business purposes.
If you drive for work, use your car for your job, or even use car-for-hire services or rideshare programs for business purposes, you might be able to deduct expenses related to your vehicle. How and when you claim those deductions can impact your tax burden.
Furthermore, tax laws can vary state by state and year to year, further complicating matters. Nevertheless, understanding the rules governing business use of vehicle deductions can yield significant tax advantages.
For example, you may be able to deduct the costs of operating and maintaining your vehicle, the costs of local transportation and traveling away from home overnight, or other expenses using either the standard mileage rate or actual expenses.
To discover how you can maximize your tax deduction for the business use of vehicles, continue reading below.
The IRS has specific rules about how you must use your vehicle to be considered a business use and what types of vehicles can qualify.
According to the IRS, vehicle use falls into three categories: business, personal, or commuting. In order to be eligible for a deduction for your vehicle use, the purpose must be for business. (Unfortunately, commuting costs are usually not deductible, no matter how far you have to drive.)
“Business use,” as defined by the IRS, generally refers to ordinary and necessary costs related to travel from one work location to another within your tax home area. The tax home area is usually the entire city or general area where your main place of business is located, regardless of where you live.
Other types of travel that you are typically able to deduct include:
Expenses related to travel away from home overnight are travel expenses; therefore, you cannot deduct them as business use of the vehicle. Additionally, as mentioned above, you generally cannot deduct the costs of driving your car or truck between your home and your primary or regular workplace. These costs are personal commuting expenses.
You could potentially write off any vehicle that you use for business. However, the IRS rules for deductions depend on the type of vehicle and how it is used.
Ordinarily, you can deduct expenses related to the use of a car, van, SUV pickup, or panel truck for business activities as transportation expenses. But the IRS treats the use of larger vehicles, such as tractor-trailers, differently.
Additionally, there are some other types of vehicles that do not qualify. For example:
However, it may be possible to use the standard mileage rate when it comes to cars used for hire, such as taxis, Uber, Lyft, or ride shares. The standard mileage rate eliminates the need to keep track of actual costs, such as depreciation, lease payments, maintenance and repairs, gasoline, oil, insurance, and vehicle registration. When it comes to these expenses, the standard mileage rate is used in their place, meaning if you choose to use this method, you may not deduct the actual expenses as well.
The standard mileage rate is essentially a default cost per mile set by the IRS, which taxpayers can use to determine the deductible costs of a vehicle owned or leased. The IRS adjusts the standard mileage rate annually to reflect changes in the cost of operating a vehicle. In some situations, it is adjusted during the year.
If a taxpayer wishes to use the standard mileage rate for a leased vehicle, it must be used for the entire lease period. In other words, a taxpayer must use the standard mileage rate for the first year a vehicle is available for business use to use the standard mileage rate in subsequent years.
Some costs are not included, which are still deductible even if you choose to deduct the standard mileage rate. These include:
For 2022, the standard mileage rate for the cost of operating your car for business use is 58.5¢ per mile before July 1 and 62.5¢ per mile after June 30.
To use the standard mileage rate for a car you own, the vehicle must have been used for business in the first year it was available. You can choose between the standard mileage rate method or actual expenses in later years. To reiterate, if you use the standard mile, you cannot also deduct actual expenses for that year.
Furthermore, you cannot use the standard mileage rate if you:
In short: Yes, you most likely can do so, but the amount you can deduct will change based on how you use your vehicle.
For example, if you use your car only for business purposes and nothing else, you may be able to deduct its entire cost of ownership and operation (subject to limitations). On the other hand, if you use the vehicle for business and personal purposes, you can only deduct expenses related to its business use.
For example, if you drive your car 20,000 miles during the year, including 12,000 miles for business use and 8,000 miles for personal use, you can only claim 60% (12,000 divided by 20,000) of the cost of operating your car.
A business-owned vehicle, such as a company car, does not qualify as taxable income when used only for business purposes. However, if you use the company car for personal use, it generally becomes taxable as part of your wages and must be reported on your W-2.
Basically, the personal use of a company car has value, and the IRS treats that value as additional wages. Regarding how much you can use the business vehicle for personal use, that is up to your employer — but it needs to be reflected in your taxable wages.
Unfortunately, just as in the case of a personal vehicle mentioned, your commute does not count as business use, even if you are commuting in a company car.
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Jeff Coyle, CPA, Partner of Rosenberg Chesnov, has been with the firm since 2015. He joined the firm after 20 years of business and accounting experience where he learned the value of accurate reporting, using financial information as a basis for good business decisions and the importance of accounting for management.
He is a diligent financial professional, able to manage the details and turn them into relevant business leading information. He has a strong financial background in construction, technology, consulting services and risk management. He also knows what it takes to create organizations having built teams, grown companies and designed processes for financial analysis and reporting.
His business experience includes:
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Planning and preparation of GAAP and other basis financial statements.
Providing insight on financial results and providing advice based on those results.
Jeff also has a long history of helping individuals manage their taxes and plan their finances including:
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Filing quarterly and annual taxes.
General financial and planning advice.
Prior to joining the firm in 2015, Jeff was in the private sector where he held senior financial and management positions including Controller and Chief Financial Officer. He has experience across industries, including construction, technology and professional services which gives him a deep understanding of business.
Jeff graduated from Montclair State University, he is a CPA and member of the American Institute of Certified Public Accountants, New York State Society of Certified Public Accountants and New Jersey State Society of Public Accountants.
Jody H. Chesnov, CPA, Managing Partner of Rosenberg Chesnov, has been with the firm since 2004. After a career of public accounting and general management, Jody knows the value of good financials. Clarity, decision making, and strategy all start with the facts – Jody has been revealing the facts and turning them into good business results for more than three decades.
He takes a pragmatic approach to accounting, finance and business. His work has supported many companies on their path to growth, including helping them find investors, manage scaling and overcome hurdles. His experience and passion for business reach beyond accounting and he helps businesses focus on what the numbers mean organizationally, operationally and financially.
He has a particular expertise in early-stage growth companies. His strengths lie in cutting through the noise to come up with useful, out of the box, solutions that support clients in building their businesses and realizing their larger visions.
Prior to joining the firm in 2004, Jody was in the private sector where he held senior financial and management positions including General Manager, Chief Financial Officer and Controller. He has experience across industries, which gives him a deep understanding of business.
Jody graduated with a BBA in Accounting from Baruch College, he is a CPA and member of the American Institute of Certified Public Accountants and New York State Society of Certified Public Accountants.
In addition to delivering above and beyond accounting results, Jody is a member of the NYSCPA’s Emerging Tech Entrepreneurial Committee (ETEC), Private Equity and Venture Capital Committee and Family Office Committee.
He is an angel investor through the Westchester Angels, and has served as an advisor for many startup companies and as a mentor through the Founders Institute.
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