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Understanding Business Use of Vehicles, Eligible Write-Offs, and Simplified Record-Keeping

By David Thompson

Business use of a vehicle refers to using a car, truck, or other vehicle for activities related to operating a business. This can include driving to meet with clients or customers, delivering products, running business-related errands such as going to the post office or purchasing supplies, and traveling between different job sites or business locations. For tax purposes, the costs associated with using a vehicle for these business activities can often be deducted from taxable income, which can reduce the overall amount of taxes a business or individual has to pay. To claim these deductions, accurate records of the vehicle’s use, such as mileage logs and receipts for expenses, must be maintained.

The IRS categorizes mileage into three distinct types:

  • Personal: This includes driving for non-business activities, such as shopping or taking your family to dinner. Personal miles are never tax deductible. 
  • Business: This involves driving for work-related tasks, like attending a conference or meeting with a client.
  • Commute: This refers to the daily travel from your home to your regular workplace.

Business Mileage 

Let’s begin with the type of mileage that can save you money: business miles. These miles cover the distance you travel between different work locations. According to IRS guidelines, only business miles are eligible for deductions. Eligible business miles are as follows: 

  • Driving to meet a client at their office or another work location
  • Running business errands during your workday, like picking up office supplies or making deliveries
  • Traveling to different work locations throughout the day
  • Traveling between your main job and a temporary work location
  • Traveling from your home to a temporary workplace if your regular job is at another location

Commuting Miles 

Commuting miles are the miles driven between your home and regular workplace. Commuting miles are generally not tax-deductible. This also includes:

  • Your daily drive to and from work, even if you work in a different location occasionally
  • Traveling to a satellite office, if it’s your regular location, even if it’s different from your main office.

Example: Commuting Miles vs. Business Miles

Commuting Miles: Jane drives from her home to her office every weekday morning and returns home in the evening. This daily travel from her residence to her regular workplace is considered commuting.

Business Miles: On Wednesday, after reaching her office, Jane drives to a client’s location for a meeting. After the meeting, she returns to her office and later in the day drives to a nearby store to pick up office supplies before heading back to the office.

Commuting Miles: The miles Jane drives between her home and her regular office are considered commuting miles. These are not tax-deductible according to IRS regulations.

Business Miles: The miles driven from her office to the client’s location, from the client’s location back to her office, and from the office to the store for office supplies and back to the office are considered business miles. These miles are tax-deductible because they are directly related to her business activities.

What kinds of vehicles are eligible for a 100% write-off in the year you buy them

In 2023, the U.S. government allowed businesses to write off the full cost of purchasing heavy vehicles weighing over 6,000 pounds for tax purposes. This means if a business bought such a vehicle, they could deduct the entire cost from their taxable income, reducing the amount of taxes they owe. This incentive was designed to encourage investment in larger, often more expensive vehicles, which could benefit certain industries like construction or transportation. For vehicles under 6,000 pounds like cars, SUVs, and small trucks, tax rules are different compared to heavier vehicles. Essentially, businesses can’t immediately deduct the full cost of these lighter vehicles from their taxes in one year. Instead, they have to spread this deduction over several years. This means they can gradually deduct a portion of the vehicle’s cost each year until it’s fully accounted for. So, while businesses do get a tax benefit, it’s not as immediate as it would be for heavier vehicles.

Documentation requirements for business use of vehicles and how to make it easy

To ensure you can claim a deduction for using a vehicle in your business, you need to provide evidence for four key elements. Keeping a written or electronic log of your miles, dates of use, destinations, and purpose is sufficient for the standard rate method. For the actual expense method, maintaining records like receipts, checks, and bills alongside a mileage log is necessary. It’s crucial to keep these records updated regularly, either weekly or daily, depending on your preference and business needs. Additionally, store these documents in your permanent files for at least three years after filing the tax return. Making the process of tracking vehicle expenses and mileage easier can be achieved through various modern tools and methods. Utilizing mileage tracking apps can streamline the process significantly. Most of these apps automatically track your trips using GPS and allow you to categorize them by business or personal use, simplifying record-keeping. Some of these apps even allow you to link it with your accounting software to streamline the process and generate reports based on the apps data.

If you’re looking for expert guidance and support with tax services, Lear & Pannepacker is here to help. Our team of experienced CPAs is dedicated to providing personalized solutions tailored to your unique needs. Don’t hesitate to reach out to us today to schedule a consultation and discover how we can help you achieve your financial goals.