Every vehicle needs a little tune-up from time to time. And we have to admit, a car in good working condition often finds itself at the mechanic every six months. As most car owner’s know, these maintenance and repair expenses can add up quickly. One hour of work could cost you upwards of a few hundred or more. Easily. But before your wallet starts to weep, there is light at the end of the tunnel. Fortunately, car repairs are tax deductible if you use your vehicle for business purposes.
This means only a select group of drivers can claim car-related expenses on their tax return. But for those who do qualify, consider routine oil changes, new windshield wipers and light auto repairs like headlight replacements as part of your available tax deduction. In this guide, we’ll outline everything you need to know about claiming car repairs on your taxes.
As noted, only certain taxpayers are eligible to claim a tax deduction for car expenses. This group includes small business owners, self-employed, armed reservists, and fee-basis government officials. These individuals may write-off gas, insurance, mileage, and car maintenance and repairs if they use their vehicle in some capacity for work-related tasks. Professionals that often take advantage of car-related deductions include salespeople, HVAC technicians, contractors, and qualifying artists.
In some professions, driving is a requisite for your job. Therefore, if you use your vehicle for business purposes, you typically can deduct any ordinary and necessary car expenses. You are allowed to write-off these costs in one of two ways: using the mileage deduction or computing actual car expenses.
With the latter option, taxpayers can calculate their tax deduction using the actual expense method. Here are a list of the common car-related expenses that eligible taxpayers can deduct:
Perhaps keeping up with the above expenses sounds like too much commitment on your part. In that case, we recommend taking the mileage deduction. In contrast to itemizing expenses, the IRS provides an annual standard rate that comprises an average of all vehicle expenses for the year. For 2022, the standard mileage rate for using a car, van, or pickup truck is 58.5 cents per business mile.
So what’s the best way to track mileage? Forget using a paper mileage log or taking photos of your odometer each business trip. With a mileage tracking app, you can easily manage all of your business miles with confidence. The best part — you’ll have a digital report of your drives when it comes time to file.
The first question you need to ask yourself is — How often do I drive my car for business? Remember, the tax deduction only applies to the business use of your vehicle. Personal miles do not count. So you’ll have to separate and measure this time wisely. A simple way to do this is by keeping track of your mileage throughout the tax year. With MileIQ, you can classify each drive as Personal or Business, making it clear to see what percentage of your time is dedicated toward business miles.
We’ll give you an example: Let’s say you drove your car 70% of the time for business and the other remaining amount was non-deductible personal miles. In general, you can expect to deduct 70% of your car expenses toward your deduction. Seems pretty simple, right? There is one caveat. For a taxpayer to be eligible to claim car repairs and other vehicle expenses on their taxes, they must also maintain warrantable records. This is best achieved by keeping a contemporaneous mileage log or receipts and invoices from actual expenses.
The place where you report this information will vary depending on your filing status. Business owners and self-employed document car expenses on a Schedule C form. Other eligible taxpayers, such as armed forces reservists, qualified performing artists, and fee-basis state or local government workers must report this information on Form 2106. If you need some guidance on this part, never hesitate to hire a tax professional. It’s better to file correctly versus making dubious tax mistakes.
According to the IRS, improvements to your business vehicle are not a deductible business expense. It’s important to note the difference between an actual repair and an improvement. Some examples of improvements would be expanding the bed of a work truck or switching to a more efficient engine. Generally, it's any cost incurred that is not necessary but does add value to your business vehicle. Not all hope is lost though! You can depreciate these costs over a five year period or longer.
Want to learn more about vehicle-related deductions? Check out other MileIQ articles for more information: