Business Use of a Vehicle

Business owners have a number of options available to deduct costs of a vehicle used in their business. Here, I provide an overview of tax incentives currently in place and options available to deduct the cost of a vehicle.

Tax Incentives for Large Trucks & SUVs

Currently, there are tax incentives in place for trucks & SUVs that have a gross vehicle weight of 6k pounds or more. Typically, you have to deduct the cost of a vehicle over 6 years, however, vehicles that meet the gross weight requirements qualify to be deducted in full, to the extent the vehicle is used for business based on mileage, in the first year the vehicle is used in the business. The vehicle must be used greater than 50% for business use to qualify for this treatment.

The tax incentives for trucks & SUVs that meet the gross weight requirements are available even if you chose to finance a vehicle with a loan over several years. This allows business owners to get upfront tax savings while paying for the full cost of the vehicle over a number of years. Leased vehicles do not qualify for the upfront tax deduction.

Deducting Vehicle Expenses

There are two methods to deduct the cost of a vehicle: taking actual expenses or using the standard mileage rate. For 2020, the standard mileage rate is 57.5 cents per business mile. For new vehicles that meet the gross weight requirements, it is generally best to use actual expenses since you are able to receive an upfront deduction for the cost of the vehicle. In addition to the cost of the vehicle, actual expenses include gas, insurance, and repairs.

Commuting Miles

It is important to note that business miles do not include driving to/from home and your usual place of business, such as an office. These miles are considered commuting miles and should not be included in business miles.

Business Miles

Examples of business miles include driving from one business location to another, driving from home to run an errand for your business, meet with clients outside of your office, and attend networking events.

Mileage Log

You are required to keep a log of your business miles in order to deduct the business use of your vehicle whether you take the standard mileage rate or actual expenses. The easiest solution is to use a mileage tracking app on your phone. Some apps are able to sense when you have traveled somewhere using sensors built into your phone to prompt you to indicate whether a trip was for business.

Contact me to discuss this topic in further detail

Please note: the information on this website is intended to provide general advice to start the discussion with your tax professional. The information on this website may not apply to your specific situation. Only an experienced professional with the details of your specific situation can advise you on making the best decision. Contact me or your tax professional to discuss the information on this site to make an informed decision.