How to write off a car for business

A vehicle is one of the indispensable tools for running a business, particularly for start-ups, freelancers, and independent contractors.

From moving and delivering goods and products to attending meetings and client presentations, car expenses are indeed a significant part of an organization’s daily operations.

The good news is that the Internal Revenue Service (IRS) has established guidelines that allow taxpayers to write off car expenses for business, thereby reducing their total taxable income. 

However, exploring this type of deduction requires comprehensive planning and advanced record-keeping to adhere to the IRS’s guidelines.

This article will help you navigate and learn how to write off a car for business to maximize tax deductions and optimize your financial resources.

What is an auto expense deduction?

Auto expense deduction may seem self-explanatory, as taxable income is reduced by factoring in deductions associated with using a car for business purposes. 

Self-employed individuals and business owners are the primary groups for whom writing off car expenses is most applicable.

These include contractors, part-timers, and freelancers who use personal cars for business engagements, for which expenses are also reflected on the IRS Schedule C (Form 1040).

Meanwhile, most business employees’ unreimbursed car expenses are no longer deductible due to changes in tax law, particularly with the Tax Cuts and Jobs Act of 2017.

Business car expenses you can write off based on the IRS 

The IRS determines the types of expenses for which you can apply auto expense deductions. It is crucial to understand these elements to maximize your car write-offs fully. 

Here is the list of auto expenses that can be written off based on the IRS guidelines:

Mileage

The IRS sets a standard mileage rate each year, which taxpayers can use as a guide for calculating mileage deductions by simply multiplying the set rate by the total number of business miles driven.

Remember that a car write-off also has limitations, including mileage consumed while driving to the office from home, which is essentially a personal expense. 

Using this method also restricts you from other related deductions for auto expenses, such as fuel, license fees, and even depreciation. 

Here’s the comparative list of mileage rates from tax year 2023 to 2025 to guide you:

Depreciation

This deduction underwent the process of writing off a car for business over the years, factoring in its normal wear and tear, rather than deducting the full purchase price in a single year.

It utilizes a calculation system called the Modified Accelerated Cost Recovery System (MACRS), which is also a key element in using the actual expense method for filing a car write-off.

MACRS also works in conjunction with the Section 179 deduction, which allows taxpayers to deduct a portion or all of the cost in the first year, including cars, up to a specific limit.

Meanwhile, 100% Bonus Depreciation has been restored in 2025, allowing for a steady recovery of the vehicle’s cost. Amounts not covered by these accelerated deductions are then depreciated using MACRS.

Payments for lease and loan interests

Taxpayers who lease a car for business purposes can deduct a percentage of their lease payments. This deductible percentage is directly equivalent to the total miles driven for business.

Additionally, a taxpayer’s car loan used for business is also applicable for a percentage deduction on the amount of interest paid.

Insurance premiums and administrative fees

Owning a car is high maintenance, as you must obtain insurance and licenses before driving. 

This led the IRS to include write-offs for a portion of insurance premiums and fees covering the renewal of licenses, as well as other administrative costs, to help taxpayers who use their cars for business.

Gas, fuel and repair costs 

These essential elements of a vehicle are also included in deduction. However, there is a limitation to filing these costs for car write-offs, and it only applies to portions used for business purposes. 

Aside from gas and fuel, other necessary maintenance items, such as oil changes, brake repairs, and tire rotations, are also eligible for deductions.

How to file tax deductions for your car expenses

Filing tax deductions for car expenses involves determining which method you’ll use between the Standard Mileage Rate and Actual Expenses and reporting deductions on the appropriate IRS forms. 

It’s crucial to understand that for tax years 2024 and 2025, employees generally cannot deduct unreimbursed employee business expenses, including auto expenses. 

Writing off cars for business is primarily for self-employed individuals and business owners (including independent contractors, freelancers, and gig workers).

Here’s a breakdown of how to file your car expense deductions:

Eligibility and method 

As mentioned, auto expense deductions are limited and applicable only to business owners, self-employed individuals, and special categories set by the IRS. 

These include state or local government officials paid by fees, reservists in the Armed Forces, performing artists who qualify under IRS rules, and employees with impairment-related work expenses.

Records gathering

Gathering records of receipts, transactions, and mileage logs is a vital duty to ensure the applicability of writing off car expenses for business. 

It is challenging to monitor and perform this role, which makes the services of tax specialists significant, as they help taxpayers with their documentary requirements and assist them through the filing process.

Calculate deductions

After gathering all the records, taxpayers can now calculate their respective auto deductions using either the standard mileage rate formula or the actual expense method.

The formula for the actual expense method is more detailed, which multiplies the set rate by the total number of business miles driven.

Report deduction on your tax return

The specific IRS forms required to write off a car for business purposes vary, depending on the type and organizational structure of the enterprise.

Here is the list of forms that you may use for filing auto expense deductions:

• Schedule C (Form 1040): This is commonly used for self-employed taxpayers (sole proprietors and independent contractors)
• Schedule F (Form 1040), Profit or Loss from Farming: This form is used by farmers to report car expenses and may require additional forms, such as Form 4562.
• Form 2106, Employee Business Expenses: This form is intended for specific categories of taxpayers, as outlined in the Tax Cuts and Jobs Act of 2017.
• Form 4562, Depreciation and Amortization: This form is used for reporting and calculating depreciation deductions for assets, such as vehicles, using the actual expense method.

Methods of deduction: Actual expenses vs standard mileage rate

As stated, two primary methods can be used to write off car expenses for self-employed individuals and business venturers: the standard mileage rate and actual expenses. 

The standard mileage rate method is less complicated, as the IRS sets an annual per-mile rate for business miles driven by taxpayers. There are also separate deductions for parking and tolls.

The actual expenses, on the other hand, require computations and record-keeping processes to deduct a percentage of all applicable business-use expenses.

Although there are more and less complicated methods, it is essential to conduct a careful review and comparison of these two methods to determine which one yields the most significant tax deduction.

Maximizing auto expense deductions for business development

For business development and sustainability, knowing how to write off a car for business is an effective tool for managing resources and promoting strategic cost-effectiveness.

By tracking and monitoring all car-related expenses and business mileage, taxpayers can leverage both methods to determine which one yields the most significant benefits. 

With financial technology and process automation, record-keeping is made more convenient, backed by services that a tax professional can offer. 

Optimizing strategies to write off a car for business enables businesses to recalibrate their resource allocation, enhance operational efficiency, and capitalize on greater market opportunities.