Expenses related to use of a car, van, pickup or panel truck for business can be deducted as transportation expenses, but only for taxpayers who are self-employed or small business owners, or when using their vehicles for activities such as medical visits or charitable work. Taxpayers who are employees and paid via Form W-2 are not eligible for any deductions for vehicle expenses.
Note: Use of larger vehicles, such as tractor-trailers, is treated differently and is not part of the discussion below.
Claiming Deduction
Eligible taxpayers can claim their deduction in two different ways:
1. Deducting the actual business-related costs of gas, oil, lubrication, repairs, tires, supplies, parking, tolls, drivers’ salaries, and depreciation, OR
2. Using the standard mileage rate provided each year by the IRS. For tax year 2024, that is 67 cents per mile, up from 65.5 cents in 2023. For your deduction, you simply multiply 67 cents by the number of business miles traveled during tax year 2024.
Note that if you are using the standard mileage rate, your parking fees and tolls must be deducted separately.
The standard rate may understate your vehicle costs, especially if you use the car 100 percent or close to it for business. The standard mileage method may provide greater benefits for taxpayers who have less expensive cars. Your tax professional can determine which approach is best for you.
Business Driving Versus Commuting
Business miles are considered only those driven from a person’s principal place of business, whether that is a home office or a separate office location. In contrast, driving from home to a principal place of business is considered a commute, even for those who are self-employed or small business owners.
Business miles are deductible for activities like meeting with clients, traveling to secondary work sites or running errands to pick up supplies. If a person drives for both business and personal purposes, only the miles related to the business use are deductible.
The vehicle deduction can be important for anyone with their own business, but especially for those working in the gig economy as ride-share or independent delivery drivers. The companies that provide these applications often provide year-end statements with summaries of miles driven.
You can also deduct the interest you pay to finance a business-use car if you are self-employed.
Self-employed taxpayers can claim their business mileage deduction on their Form Schedule C, not subject to any threshold requirements or limits. Small business owners claim business mileage deductions on their corporate tax returns, including Form 1120 and 1120S or Form 1065.
Documentation
All mileage should be carefully documented. If you are audited, the IRS will want to see “substantiation,” such as a daily log that includes dates, mileage amounts, destinations and the reasons for travel. Logs can be handwritten, in an Excel spreadsheet, or through an app.
In addition, the IRS requires that you show both business and personal use of vehicles on your tax return. If you use the actual cost method for your auto deductions, you must keep receipts for all vehicle expenses. Some taxpayers use a separate credit card for their business expenses to simplify recordkeeping.
Non-Business Deductible Mileage
You can also deduct mileage driven for charitable purposes while volunteering for a nonprofit organization or for receiving medical care. Medical mileage deductions, however, are subject to medical expense limitations and are only deductible when total medical related expenses exceed 7.5% of your adjusted gross income.
The 2024 medical or moving rate is 21 cents per mile, down from 22 cents per mile last year. The charitable rate is not indexed and remains 14 cents per mile
Mileage for moving is deductible only by active-duty military members who are relocating because of new orders.
Section 179 Tax Deductions for Small Business Owners
A special tax benefit called the IRS Section 179 Deduction allows you to deduct the cost of certain larger vehicles from your tax returns. Under this benefit, you can immediately deduct a portion of the full purchase price of qualifying vehicles instead of depreciating the value over several years — provided they are used for business purposes more than 50% of the time.
Vehicles that may qualify under the Section 179 tax deduction include:
• Heavy SUVs, pickups, and vans over 6000 lbs.
• Typical work vehicles without personal use
• Cargo vans and box trucks with no passenger seating
• Specialty vehicles like ambulances and hearses
For tax year 2024, taxpayers can deduct up to $30,500 for qualifying vehicles weighing between 6,000 and 14,000 pounds. Larger commercial cars, vans and buses are exempt from this limitation and these types of business vehicles may be eligible for a full deduction of their cost.
If you have questions about this featured topic or other accounting and tax related topics, please do not hesitate to contact us at 727-327-1999 OR [email protected].
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