As an established entrepreneur with a profitable business, you’ve probably noticed that with those growing profits often comes a hefty tax bill. It’s no wonder that tax-saving strategies are on your radar—and you’re not alone! In our tax planning calls lately, we’ve had many of our clients ask us questions about things they’ve seen online, specifically about vehicle deductions: “Can I write off my car, and will it actually save me money?”
The truth is, with the right setup, writing off car expenses could be a smart way to lower your taxable income. Today, we’re breaking down the basics of car write-offs for your small business, including when and how they apply, to help you decide if this deduction could be a meaningful part of your tax strategy. Let’s dive in and explore the potential savings.
The Basics: Business Purpose
If you’re using your car for legitimate business purposes, you have two options for deducting expenses: the standard mileage rate or actual expenses. But first, what qualifies as a “business purpose” for your vehicle?
In general, driving counts only if it’s directly related to your business, such as:
- Traveling to in-person client meetings
- Attending networking events or professional development opportunities
- Making work-related deliveries
- Driving between office locations, if you have multiple locations
However, taking client calls while running personal errands, commuting from home to your office, or putting a logo on your car for marketing while grocery shopping unfortunately doesn’t qualify as a business activity.
Deduction Options for Business Car Expenses
1. Standard Mileage Rate
This is the simpler route for those who only occasionally drive for business purposes. Here’s how it works:
- Track the miles you drive specifically for business purposes.
- Multiply those miles by the current mileage rate (currently $0.67 per mile for 2024), and that’s your deduction!
Note: If you use this method, you can’t also deduct actual expenses like gas or repairs, as this would be considered “double-dipping.”
2. Actual Expenses
If your car sees a lot of business miles, the actual expense method may be the better choice. Here’s how it works: Calculate your total vehicle expenses (including gas, insurance, repairs, etc.), then apply the percentage of miles you use the car for business.
For instance, if you use your car 70% for business, you can deduct 70% of your auto expenses.
What About Depreciation?
Depreciation is often the most significant deduction business owners aim to take. If you’re using your car for business more than 50% of the time and using the actual expense method, you may be able to purchase your car under your business’s name and take depreciation deductions.
Another caveat – You might need to report additional income as a fringe benefit if you’re using the vehicle for personal trips beyond incidental use.
Key Depreciation Details for 2024
Before diving into specific vehicle depreciation rules, let’s cover what depreciation actually is and why it’s valuable for business owners. In simple terms, depreciation is a way to account for the decrease in value of an asset (like a vehicle) over time. When you purchase a vehicle for your business, it begins to lose value, or “depreciate,” as it’s used.
The tax code allows you to deduct a portion of this reduced value each year, spreading out the cost over time. This can help reduce your taxable income by recognizing that assets used in your business don’t stay new forever. And with some assets (including vehicles!) you can take advantage of accelerated depreciation to deduct more of the cost in the year you purchase the vehicle.
With vehicle depreciation, the rules vary depending on the weight of the vehicle, its business use, and whether you’re using bonus or Section 179 depreciation. Here’s how these options apply in 2024:
- Vehicles Over 6,000 lbs (Gross Vehicle Weight):
If your vehicle is over 6,000 lbs (often SUVs, trucks, and vans), you may be eligible for bonus depreciation. In 2024, this allows you to take a deduction equal to 60% of the vehicle’s cost in the year you buy it, even if it’s financed. However, keep in mind that bonus depreciation rates are set to decrease to 40% in 2025, so planning your purchase timing can impact your deduction.Alternatively, you could consider Section 179 depreciation, which allows you to deduct a specific dollar amount in the first year. For vehicles over 6,000 lbs, this deduction is up to $30,500. - Vehicles Under 6,000 lbs:
If your vehicle weighs less than 6,000 lbs, you may still be eligible for Section 179 and/or bonus depreciation, but the deduction is capped at $20,400 in the first year. Additional limits also apply if your vehicle is classified as “luxury” based on specific IRS criteria. These limits can affect the maximum deduction available, so it’s worth checking if your car qualifies under these guidelines.
To maximize depreciation, your car needs to be used more than 50% for business purposes, which allows for the full deduction of eligible expenses and potential depreciation. Tracking your business miles accurately is essential here, as it determines the percentage of expenses that can be deducted.
Why Vehicle Deductions Matter
Vehicle deductions can be a smart way to reduce taxable income and set aside more funds for business growth. By deducting mileage, actual expenses, or taking advantage of Section 179 and bonus depreciation, you can effectively lower your tax burden. However, it’s essential to remember that buying a car solely for the tax benefits isn’t a good strategy. Always make sure a vehicle purchase aligns with your actual business needs. Consult your tax advisor to maximize these deductions wisely without unnecessary spending.
Looking to Save More on Taxes as a Business Owner?
If you’re ready to uncover more tax-saving strategies, check out our free Tax Savings Menu! This guide covers over 75 potential tax deductions, credits, and strategies that could save you thousands on your tax bill.
Taking a proactive approach to your business finances can make a huge difference, and we’re here to help you navigate it all! Grab your free guide, and let’s get those savings rolling!
Young and Co empowers service-based business owners to make an impact in their world through strategic financial services. Let us be your partner in understanding how to confidently handle growth in your business. Together, we’ll build a strategic plan that sets you up for long-term financial success. Learn more about our services and how we can support you in your business endeavors by visiting our website today!
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