Business Use of Car
Business owners and the self-employed can deduct the expenses of using their car for business. The deduction can save on taxes. The method you use to deduct costs (covered later) can have a significant impact on your tax bill.
Who Can Deduct Car Expenses?
The business vehicle deduction is only available to business owners and self-employed people. Employees are no longer allowed to deduct expenses for using their vehicle. (There are also deductions, at different rates, for vehicle use for medical travel and charitable purposes)
What Can I Deduct?
Costs for going to see clients, visit job sites, and going to business appointments are deductible. Expenses for commuting and personal use of the car are not deductible.
How Much Can I Deduct?
The business use percentage, based on miles, determines the deductible portion of vehicle expenses.
Good record keeping is a must. The IRS requires records to substantiate any claimed deduction. The records be written, at or near the time of the vehicle use, and include:
- Cost of each separate expense
- Cost of vehicle and any improvements
- Date you began using the car for business
- The beginning and ending mileage for each business use
- The total miles for the year
- Date of the expenses
- Your business destination and business purpose for each trip
There are two methods to take the deduction:
- The standard mileage rate:
For 2021 you can deduct $0.56 per business mile plus:- Tolls and parking for business purposes
- Auto loan interest (only the amount allocated to the business portion of vehicle use)
- The business part of personal property taxes on vehicle.
-OR-
- Actual Expenses you can deduct include:
- Vehicle registration fees
- Licenses
- Insurance
- Gas
- Oil
- Repairs & maintenance
- Depreciation – Can have a big impact – Discuss with a tax pro.
- Auto Loan Interest / Lease payments
Choosing the best method depends on your specific circumstances, and there are detailed rules and requirements for everything summarized here. Be sure to consult an expert. We can help; please call Aaron Hoffman at 203-548-0220 for assistance with vehicle deductions.
This site contains general information for taxpayers. Each situation depends on its unique facts. Do not rely on this content as a sole source of information. Seek professional tax advice before taking any action based on this information.