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Tax-Deductible Car Expenses for Small Business Owners: What You Can Claim and How to Track It

For small business owners, using a vehicle for business purposes can result in significant tax deductions. However, understanding which car expenses are deductible, how to separate business and personal use, and how to properly track these expenses is essential for compliance and maximizing tax savings. Here’s a comprehensive guide with specific examples to help you navigate these deductions.

Tax-Deductible Car Expenses: Specific Examples

Small business owners can generally deduct expenses for the business use of their car. There are two methods for claiming car expenses:

1. Standard Mileage Rate: You can deduct a set amount per mile driven for business purposes. For example, if the IRS mileage rate is 65.5 cents per mile and you drive 1,000 business miles in a year, you can deduct $655.

2. Actual Expense Method: Alternatively, you can deduct the actual costs of operating the vehicle for business, including:

   • Gas and oil
   • Repairs and maintenance (such as tire replacements)
   • Vehicle registration fees
   • Insurance premiums
   • Lease payments or depreciation if owned
   • Parking fees and tolls incurred during business trips

Examples of Business Use vs. Personal Use

It’s crucial to distinguish between business and personal use. Here are clear examples:

Business Use Examples:

• Driving to client meetings
• Traveling to job sites
• Visiting vendors or suppliers
• Driving to business conferences or professional development events

Personal Use Examples:

• Commuting from home to your regular office location (not deductible)
• Running personal errands
• Family outings or vacations

How to Keep Track of Each

Proper documentation is key to claiming deductions. Here’s how to keep track of business and personal use:

1. Mileage Log: If using the standard mileage method, keep a detailed log that includes:

   • Date of the trip
   • Purpose of the trip
   • Starting and ending location
   • Total miles driven

   Apps like MileIQ or QuickBooks Mileage Tracker can simplify this process.

2. Tracking Actual Expenses: If using the actual expense method, save receipts for:

   • Fuel purchases
   • Repairs and maintenance
   • Insurance and registration payments
   • Parking and toll expenses

   You’ll also need to track the percentage of vehicle use that’s for business. For example, if 70% of your total miles driven in a year are for business, you can deduct 70% of your actual car expenses.

Conclusion

Understanding and properly tracking deductible car expenses can save small business owners substantial amounts on their taxes. By choosing either the standard mileage method or the actual expense method — and by keeping clear records that separate business and personal use — you ensure compliance and maximize your tax benefits. If you’re unsure which method is best for your business, consulting with a professional bookkeeper or tax advisor can help you make the most informed and profitable choice.