One of the common discussions I have with business owners is the treatment of vehicle expenses vs mileage.   So, let’s chat about it and see if we can make things clearer.   It is essential you understand the tax implications and opportunities for deductions. The IRS provides specific guidelines for deducting vehicle expenses, including mileage deductions, which can significantly reduce taxable income. First, we will discuss the key aspects of vehicle-related tax deductions, record-keeping requirements, and updates for the 2025 tax year.  In a future blog we will dive in a little deeper.

What are the choices you have?   Small business owners can choose between two methods to deduct vehicle expenses.   The first question you must ask yourself is, are you using a personal vehicle for business or a business vehicle for personal use?  Who is paying for the vehicle? Do you want to depreciate the vehicle and what are the pros and cons of doing such.   Your choices are the Standard Mileage Rate Method and  the Actual Expense Method.   The standard mileage rate increased to 70 cents per mile for the 2025 tax year, reflecting the coverage of higher operating costs.   The Actual Expenses Method includes the operating expenses of the vehicle and depreciation of the vehicle.

Record-Keeping Requirements are not an option if you want to take the deduction.   Proper documentation is critical to substantiate vehicle-related deductions. The IRS requires taxpayers to maintain detailed records, including:

• Mileage Logs:
  • Date of each trip
  • Starting and ending odometer readings
  • Purpose of the trip
  • Total miles driven
• Receipts and Invoices:
  • For fuel, maintenance, and other expenses under the actual expense method.
• Proof of Business Use:
  • Documentation showing the vehicle was used for business purposes, such as client visits or deliveries.

Remember it does not matter if you are doing actual expenses or mileage.  You need to keep mileage showing business vs personal use.   If the car is 100% business, you need to record mileage at the beginning of the year and at the end to substantiate each years use.

Understanding the tax treatment of vehicles and mileage deductions is essential for small business owners to maximize their tax savings. By choosing the appropriate deduction method, maintaining accurate records, and staying updated on IRS guidelines, business owners can ensure compliance and optimize their deductions.  Talking to your tax preparer is essential to determine the best route for you.

If you need that trusted advisor schedule an appointment and let’s discuss your specific needs.