The Complete Guide to Small Business Vehicle Write-Offs

If you are considering buying a car for your business, you could save a lot of money on taxes by using a small business vehicle write off as a business expense.

Whether you use the car exclusively for business or for both personal and business purposes, you are likely eligible for a tax deduction that can greatly reduce your tax bill.

The tax law is very clear. If you use your car for business purposes, you can deduct it. 

But how exactly do you do that? 

Keep reading for a complete guide on how to write off your vehicle successfully.

What Qualifies as a Business Purpose?

It is common for individuals to use their cars for business purposes. However, it is important to understand what qualifies as business use to claim tax deductions accurately.

For a car expense to be deductible, its use must be both ordinary (common and accepted in your field of business) and necessary (useful and appropriate for your business)

Examples of Qualifying Business Uses of a Car

When claiming vehicle deductions, the IRS specifies that only business-related driving qualifies. 

But what does that actually include? 

As a small business owner, chances are you are using your car more often for business than you realize.

Every qualified mile driven could lower your taxable income, whether you are meeting clients or picking up supplies. 

Understanding which trips are business use is the first step in unlocking valuable tax savings.

Client Visits

Driving to meet clients at various locations is categorized as business use. 

This applies whether you are a sales representative visiting potential clients or a consultant meeting with companies for project discussions.

Such trips are essential for conducting business and generating income.

Travel Between Work Sites

If your job requires traveling between multiple work locations or sites throughout the day, these trips are considered business use. 

For example, a contractor overseeing projects at multiple construction sites or a real estate agent showing houses in different neighborhoods fits into this category.

Errands and Supply Runs

Any driving done to pick up supplies, post office runs, bank visits, or other errands directly related to your business needs qualifies as business usage. 

For instance, a florist driving to buy flowers or a restaurant owner going to a wholesale market for ingredients.

Business Meetings Outside the Regular Workplace

Traveling to attend business meetings, conferences, or networking events not located at your regular workplace is deductible. 

This can also include driving to another company’s office for professional meetings.

Driving to Temporary Work Locations

If you need to work at a temporary location that is not your regular workplace, driving to this site can also be considered business use. 

This is common for consultants, auditors, or freelancers who might have temporary engagements outside their usual office.

What Does Not Qualify?

Not all driving qualifies for a small business vehicle write-off. Understanding what the IRS considers personal use is just as important as knowing what is deductible.

Misclassifying personal travel as business use can result in denied deductions or penalties in an audit.

Commuting

Driving from your home to your regular place of work is generally not tax deductible, even if you are self-employed. 

This applies whether you are headed to your office, studio, warehouse, or any other fixed, consistent work location.

Commuting is considered a personal expense, regardless of whether you conduct business phone calls, mentally plan your day, or catch up on work-related podcasts during the drive.

Exceptions may apply if you operate your business from your personal residence.

Personal Errands

Any trip that involves personal errands, like dropping your kids off at school or going grocery shopping, does not qualify as business use.

This holds true even if you make a business call during the drive or stop at a client’s location along the way.

To ensure you are accurately claiming the business use of your car, it is important to keep detailed records of your mileage, the purpose of each trip, and other expenses related to your vehicle’s operation. 

Tools like mileage tracking apps can be helpful in maintaining precise logs that meet IRS requirements.

By distinguishing between personal and business use and documenting your trips appropriately, you can confidently claim the deductions you are entitled to, effectively reducing your taxable business income.

Who Qualifies for a Small Business Vehicle Write-off?

The IRS identifies taxpayers qualifying for a business vehicle write-off as self-employed individuals.

This includes sole proprietors and owners of pass-through entities like single-member LLCs taxed as sole proprietorships.

In addition, certain types of employees may also qualify.

This includes qualified performing artists, members of the U.S. Armed Forces reserves, and fee-based state or local government officials.

However, these groups must meet specific IRS requirements to claim vehicle-related deductions, which can vary by job type.

Additionally, individuals who use their vehicles for qualified volunteer work or for travel related to deductible medical appointments may also deduct related mileage and costs.

In these cases, the deductions are available only for specific trips.

If you fall into any of these eligible categories, consulting a tax professional can help you navigate the rules, accurately calculate your deduction, and ensure you are claiming the maximum allowable vehicle write-off based on your circumstances.

How to Write Off Your Vehicle

When writing off your car as a business owner, the IRS offers two methods for claiming vehicle deductions: the standard mileage rate and the actual expense method.

Understanding how each works is key to choosing the one that results in the most tax savings. 

Standard Mileage Rate

The standard mileage method offers a flat deduction rate per mile driven for qualified business use. 

For 2025, the IRS mileage rate is $0.70 per mile.

This means if you drove 10,000 miles for business, you would be eligible for a $7,000 tax deduction under this method.

This approach is simple, requires less recordkeeping, and is often ideal for those who do not want to track every vehicle-related expense. 

However, it may not always provide the highest deduction, especially for newer vehicles or those with high operating costs.

Actual Expense Method

The actual expense method allows you to deduct the real costs of using your vehicle for business purposes. 

These expenses can add up quickly, especially for newer or more expensive vehicle owners.

You can deduct expenses such as gas and oil for business driving, repairs and maintenance, insurance premiums, and vehicle registration/license fees.

Lease payments, depreciation, garage rent (if you pay to park your business vehicle), and vehicle loan interest can also be deducted.

For example, if you drove your vehicle for business 80% of the time, you could deduct 80% of your total vehicle-related expenses using this method.

This option often results in larger deductions, particularly with higher depreciation and lease payments

In general, if you want to save the most amount of money in taxes, you will want to choose the method that saves you the most in taxes.

What is Depreciation, Exactly?

Depreciation refers to the loss of value of an asset. Since cars are depreciating assets, the IRS allows you to take depreciation as a deduction for tax purposes.

Now, there are many types of depreciation. There is straight-line depreciation, double-declining depreciation, bonus depreciation, and so on. 

These depreciation methods are available to you in the tax law, which allows you to deduct your actual car expenses and take a depreciation deduction on top of that.

If you are like most people, you want to choose the depreciation method that saves you the most money in taxes.

So, let us quickly go over the depreciation methods:

Straight-Line Depreciation

This method depreciates the cost of your car evenly over each year. 

If you bought a $50,000 vehicle with a 5-year useful life, you could deduct $10,000 per tax year.

Declining Balance Depreciation

This method allows you to take more depreciation in earlier years to get a greater deduction today. 

For example, if you used 200% declining balance depreciation on the exact $50,000 vehicle, you could deduct $20,000 in the first year instead of $10,000.

Now, regardless of which method you choose, you need to be aware of the car deduction limits that the IRS sets.

Be aware that the IRS sets a maximum depreciation limit that limits the amount of depreciation you can take in a given year.

So, even if the method you choose provides a higher depreciation amount, you may be unable to take the full amount if it exceeds the depreciation limit set by the IRS.

Bonus Depreciation

Bonus depreciation has been a valuable tax incentive, allowing businesses to accelerate depreciation deductions. 

This deduction boosts the depreciation expense in the first year for qualifying vehicle purchases. 

Specifically, if you bought a vehicle weighing over 6,000 pounds, bonus depreciation previously allowed you to deduct up to 100% of the cost in the first year if purchased before 2023.

Currently, bonus depreciation is in a phase-out period, with the deduction percentage decreasing each year until it is fully eliminated. 

The updated phase-out schedule includes:

• 80% in 2023
• 60% in 2024
• 40% in 2025
• 20% in 2026
• 0% in 2027 (Bonus depreciation is fully phased out)

Although the bonus depreciation is decreasing, the tax benefits remain substantial for businesses that act swiftly. 

Maintaining Proper Documentation

You are required to maintain documentation to prove your transportation expenses are legitimate for a small business vehicle write-off.

For business vehicles, you should keep up with:

• The cost of each car expense 
• Date of each time the car was used for business purposes
• The business locations traveled to and from
• The business purpose of the travel

You can keep track of this information with a log, planner, or even bookkeeping software.

There is not one correct way to keep track of this information, but you must choose a way to make sure you log this information.

That way, you can reference the details in the event of an audit to prove that your car deduction is legitimate.

Bottom Line

As a small business owner using a vehicle for work, you could miss out on significant tax savings if you do not take advantage of the small business vehicle write-off.

Partner with an experienced CPA to determine whether the standard mileage rate or the actual expense method with depreciation will yield the largest write-off for your situation. 

Tax professionals like us know how to crunch the numbers both ways to ensure you receive the full deduction you qualify for.