Your car can be one of your greater expenses for the year. Let’s go over what expenditures you can write off and what costs you can’t.
Can you write off your car payment as a business expense?
Typically, no. If you finance a car or buy one, you cannot deduct your monthly expenses on your taxes. This rule applies if you’re a sole proprietor and use your car for business and personal reasons.
If you’re self-employed and purchase a vehicle exclusively for business reasons, you may be able to write off some of the costs. Keep in mind, this is more in the line of a company car, not a car that you use for personal reasons, too.
The IRS often gives extra scrutiny to the self-employed who claim 100 percent business usage and rightfully so. Not only is your commute never deductible but it also strains belief. Even the most dedicated business person will drive to a grocery store, child care facility or a market for non-business reasons.
What car expenses can I write off?
You can write off your mileage for the year, including your business, charity and medical trips. Alternatively, you can use the actual expense method to deduct the business portion of things like gas, oil, maintenance and depreciation.
If you use the actual expense method for the first year, you must use that method for future deductions for the life of the car. If you use the standard mileage rate the first year, you can alternate between methods for the life of the car.
Can I claim car insurance as a business expense?
Yes, if you use the actual expense method. You can deduct the business portion of your insurance costs for your car. The standard mileage rate already includes costs like insurance, gas and wear-and-tear.
Can I write off my lease payments on taxes?
You can deduct the business portion of your lease payments. If your lease is $400 a month and you use it 50 percent for business, you may deduct $2,400 ($200 x 12 months).
If there’s an upfront cost or down payment for the lease, you may also deduct that. But, you must spread that deduction over the entire portion of the lease.
You can also claim mileage for a leased vehicle by multiplying your business mileage by the business rate. If you do this, you cannot deduct the actual expenses like the cost of the lease itself.
What other car expenses can I deduct on my taxes?
The mileage deduction is typically the most valuable car-related deduction. But, there are others. You can always deduct the cost of your business parking and tolls. You may also deduct the interest on a car loan and personal property taxes you pay on a business vehicle.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.