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If your company uses one or more vehicles as part of its daily operations, you might be able to claim a tax deduction for the associated expenses. The Internal Revenue Service (IRS) has specific rules relating to the business use of vehicles, and you should become familiar with them prior to claiming the tax deduction.
This Balboa Capital blog article has the information you need to know about the business use of vehicles, including how to qualify for a tax deduction, how to keep accurate vehicle records, and more.
How do vehicles qualify for business use?
Cars, utility trucks, delivery vans, and sport utility vehicles (SUVs) qualify for business use if they are used for company-related activities. This can include delivering goods/products, driving to and from job sites, meeting clients or customers off-site, and running errands (e.g., picking up office supplies or inventory, visiting the bank, and dropping off packages at the post office or a shipping center).
The costs associated with using a vehicle for business use can be deducted from your company’s taxable income, providing an opportunity for tax savings.
Tips for maintaining vehicle records.
To take advantage of business use deductions, it is essential to maintain accurate vehicle records. This includes keeping detailed logs of business commuting mileage, which should specify the date, purpose of the trip, and the distance traveled. Additionally, you should retain all related documentation, such as fuel receipts, vehicle registration fees, licensing costs, and any repair or maintenance expenses incurred.
One way to maintain your business vehicle records is to use vehicle management software. This type of software often comes with features such as maintenance tracking, fuel consumption logs, and expense management, making it easier to monitor the costs associated with your vehicle. The software can be a real-time-saver if your company uses several vehicles for business purposes.
Next, you can create a detailed spreadsheet to maintain your business vehicle records and assist in accurate financial reporting and tax deductions. Whether you use software or a spreadsheet, updating it regularly and keeping all printed (or digital) receipts of your expenses is important.
There are currently two ways to calculate the cost of using a vehicle for business purposes: the standard mileage rate method and the actual expenses method. We explain them in detail in the following sections.
Standard mileage rate method.
The standard mileage rate established by the IRS for business vehicles is a set reimbursement rate that business owners can use to claim a standard amount per mile driven for business-related purposes. This rate, which the IRS sets annually, is intended to cover various vehicle expenses. In 2025, the standard mileage rate is .70 cents per mile.1
To illustrate how the standard mileage deduction works, here is an example based on the 2025 standard mileage rate of .70 cents. Let us say you drive 3,500 miles for business in 2025. In this scenario, the formula is:
3,500 business miles x .70 cents = $2,450 (standard mileage deduction)
For your company to use the standard mileage rate, you must own (or lease) the vehicle. It is important to note the standard mileage deduction cannot be used in these situations.2
- Your company operates five or more vehicles at the same time
- You claimed a depreciation deduction for the vehicle using any method other than straight-line
- You claimed a Section 179 tax deduction on the vehicle
- You claimed the special depreciation allowance on the vehicle
Actual expenses method.
The actual expenses method is another tax-deduction option to consider if your company uses a vehicle for business. It lets you itemize all costs associated with using the vehicle for business purposes. Typical costs include fuel, maintenance/repairs, tires, insurance, registration fees, licenses, garage rent, toll fees, and depreciation.
Calculating the actual expenses of your business vehicle is straightforward. You record your costs in a software system or spreadsheet and add them up. Then, multiply the result by the vehicle’s business use percentage. Here is an example to better illustrate this for a company that uses a vehicle 75% of the time for business purposes:
- Gas: $2,500
- Depreciation: $6,000
- Repairs/Service: $1,000
- Insurance: $1,800
- License and Registration: $400
Total expenses: $11,700
To calculate the deduction amount, the business owner will divide $11,700 by .75 (75%), which is $15,600. This is the total tax deduction amount using the actual expenses method.
Deciding between the standard mileage rate method and the actual expenses method can be challenging because each offers unique benefits. Consult an accountant if you have questions or need advice based on your company’s financial situation.
Section 179 and business vehicles.
When it comes to business vehicles, Section 179 enables companies to deduct the cost of vehicles used for business purposes, which can lower taxable income and provide immediate tax relief. However, not all vehicles qualify for the full deduction, so visit the IRS website or contact an accountant. Generally, qualifying vehicles are purchased (or leased) and used more than 50% of the time for business purposes. The Section 179 deduction applies to eligible vehicles obtained and used for business before midnight, December 31, 2025. In 2025, the Section 179 deduction limit for light vehicles (those that weigh under 6,000 pounds) is $12,200, and the limit for heavy vehicles (those that weigh between 6,001 and 14,000 pounds) is $31,300.3
Sources:
- https://www.irs.gov/tax-professionals/standard-mileage-rates
- https://www.irs.gov/taxtopics/tc510
- https://www.sdocpa.com/list-of-vehicles-over-6000-lbs-section-179/
Balboa Capital is not affiliated with nor endorses the Internal Revenue Service (IRS) or SDO CPA. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.