MileIQ: Mileage Tracker & Log

MileIQ Inc.

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Writing Off Car Expenses for Businesses, Freelancers, and Self-Employed

MileIQ Team
Writing Off Car Expenses for Businesses, Freelancers, and Self-Employed

Driving for work as a self-employed person, whether it’s for your own business or as a side-gig, can quickly eat into your budget. Luckily, you can write off car expenses on your taxes at the end of the year — which lowers the amount a government can tax. 

Why is that great news? If you’re a contractor, you already know that you end up paying more in taxes than an average W-2 employee. Deducting every expense you can helps you save!  

You can calculate your tax write-off using one of two methods: cents-per-mile (CPM) and actual expense method. This article will help you understand both options and which car expenses you can write off. 

Download MileIQ to start tracking your drives

Automatic, accurate mileage reports.

Who can deduct car expenses on tax returns

Both businesses and self-employed individuals can deduct car expenses from their taxable income if the car is used for business purposes, and both calculation methods are available.

However, they report the expenses differently on the tax return. Self-employed people report car expenses on Schedule C (Profit or Loss from Business) as part of their individual income tax return. 

Businesses report them on the business’s tax return (e.g., Form 1120 for corporations, Form 1065 for partnerships). In addition to that, larger companies that employ ten or more drivers and log at least 5,000 miles per year can use the more comprehensive but rather complex FAVR method.

TIP

Terms like “independent contractor,” “freelancer,” “self-employed,” and “gig worker” are often used interchangeably (including in this article!). While there are some subtle differences, all these groups follow the same rules when it comes to filing tax returns. 

They will need to use the Schedule C form unless they’ve opened their business as a corporation.

Which car-related expenses can be written off

Which car expenses are eligible for a tax write-off depends on how you calculate your mileage deductions. The hard rule is that any and all car expenses you write off must be directly related to your business and you need to be able to prove it with documentation. 

Car expenses also need to be ordinary and necessary enough to not appear frivolous to the IRS. For example, writing off the cost of repairing a flat would not raise eyebrows, but these expenses would:

  • luxury car upgrades (e.g., high-end sound systems, custom paint jobs)
  • fines and penalties (e.g., parking tickets, traffic violations)
  • depreciation on a vehicle above the luxury car limit set by the IRS

Using cents-per-mile 

For the cents-per-mile method, you can write off business mileage only.

Simply take the business mileage you drove for the year and multiply it by the standard mileage reimbursement rate provided by the IRS. Voilà, your mileage deduction number is ready. 

The IRS calculates its reimbursement rate to account for the ever-changing costs related to vehicle usage (fuel, insurance, maintenance, repairs, registration). This rate is updated every year — occasionally more often, depending on economic conditions.  

Using the actual expenses method

The actual expense method lets you deduct the true costs of driving a vehicle for a business, dollar for dollar, including:

  • fuel
  • depreciation
  • maintenance
  • repairs
  • tires
  • registration
  • insurance
  • parking and toll fees

You’ll need to track and record all of these expenses in order to deduct them on your taxes. 

In addition, the actual expense method also requires you to calculate the business use percentage of your vehicle. 

Keep in mind

If you choose the actual expense method in your first year of claiming mileage deductions, you’ll have to keep using this method for that vehicle every year.

Writing off car expenses with the cents-per-mile method 

Mileage tracking is crucial regardless of the method used to calculate car expenses, but it’s the first number (out of two) you need to calculate a tax write off with cents-per-mile.

Here’s exactly what you need to track:

  • Starting odometer reading for your vehicle at the beginning of every year
  • Total business mileage for every business-related drive
  • Destinations (to and from) for every business drive
  • Dates of each business drive
  • Purpose of every business drive

Keeping tabs on all of these variables would normally require a mileage log of some kind. But since updating a log takes time, most people prefer to use an automatic mileage tracking app, like MileIQ. 

In this case though, MileIQ tracks much more than miles — every tracked drive will also have the to and from addresses, dates, and the deduction value based on the standard mileage rate — you just need to add in the purpose of a drive and parking or toll fees. 

You can classify each drive as business or personal and the app will filter all of your work drives into a mileage report you can review at the end of the year and send to your accountant. 

Once you have your business mileage for the year, multiply it by the standard mileage rate and you’re done. If you’re a MileIQ driver, this will be calculated for you and you just need to verify the drives in your report.

Download MileIQ to start tracking your drives

Automatic, accurate mileage reports.

Cents-per-mile pros and cons

Pros

Cons

No expenses to track — you only need mileage

Your other car expenses will not count toward deductions

Simple to calculate

You’ll need to keep an eye on rate changes from the IRS, if you don’t use an automatic tracker

No guesswork — the standard rate is provided to you by the IRS

Writing off car expenses with the actual expense method

If you’re using the actual expense method, mileage is just a small piece of the puzzle. In addition to tracking business miles with an app like MileIQ, you’ll also need to keep receipts of every other business-related car expense. 

However, the true challenge of using the actual expense method is determining the business use percentage of your car. 

Business use of a car is the percentage of your total mileage driven for business purposes.

Total mileage/business mileage = business use percentage

Most self-employed people use their personal vehicles for work, so tracking which drives are strictly business can get tricky. Does your daily drive path look something like this?: Home to office supply store to daycare to client meeting to coffee shop to coworking space to grocery store to home.

If yes, then figuring out which drive is business and which is personal will get tricky, unless you use a mileage tracker that lets you classify each leg of your journey. 

You’ll need to multiply every car expense by the business use percentage to figure out how much to write off. 

For example, if you purchased a set of tires for $500 and your business use percentage was 50%, your deductible expense is only $250. 

Actual expenses pros and cons

Pros

Cons

Highly accurate — if you’re a diligent record-keeper

You need to keep records of every car expense

Can result in a higher mileage deduction

Difficult to calculate business percentage for vehicles

Can be hard to justify during an audit w/out documentation

What cars can you write off on taxes?

Section 179 of the IRS tax code allows businesses to deduct the total purchase price of qualifying equipment, including vehicles, in the year they are purchased or leased. However, it’s worth noting that while the type of vehicle doesn’t matter that much, its weight does.

Cars with a gross vehicle weight (GVW) of 6,000 pounds or less have lower deduction limits compared to heavier vehicles. Vehicles weighing more than 6,000 pounds (such as certain SUVs and trucks) may qualify for higher deduction limits under Section 179, making them more advantageous for businesses seeking significant tax deductions.

Most importantly, vehicles must be used primarily for business purposes (more than 50% of the time).

How do you buy a car and write it off?

If you want to get a Section 179 deduction on a newly purchased car, you need to remember to consistently track business mileage throughout the year. You’ll qualify if your business use percentage is 50% or higher. Your business use percentage will be the basis for calculating the write-off. 

How do I write off a car over 6,000 lbs?

Heavier vehicles (over 6,000 pounds GVW) can potentially qualify for larger deductions because they are considered to have substantial business utility. This weight threshold is crucial for determining eligibility under Section 179 and should be verified before claiming deductions.

If you’ve reached the end of this article and are still wondering if writing off car expenses is worth it, the answer is a resounding yes. There’s some record-keeping involved, but the tax savings, especially for self-employed people will likely pay off. 

Using an app like MileIQ is especially helpful for keeping business mileage separate from personal, and for calculating deductions automatically. In fact, if you use the cents-per-mile method, much of the work is done for you: MileIQ tracks all your miles and updates the mileage rate to the IRS standard. All you need to do is classify drives with a swipe and add a custom purpose to each drive. 

MileIQ: Mileage Tracker & Log

MileIQ Inc.

GET — On the App Store

Who can deduct car expenses on tax returns

Both businesses and self-employed individuals can deduct car expenses from their taxable income if the car is used for business purposes, and both calculation methods are available.

However, they report the expenses differently on the tax return. Self-employed people report car expenses on Schedule C (Profit or Loss from Business) as part of their individual income tax return. 

Businesses report them on the business’s tax return (e.g., Form 1120 for corporations, Form 1065 for partnerships). In addition to that, larger companies that employ ten or more drivers and log at least 5,000 miles per year can use the more comprehensive but rather complex FAVR method.

TIP

Terms like “independent contractor,” “freelancer,” “self-employed,” and “gig worker” are often used interchangeably (including in this article!). While there are some subtle differences, all these groups follow the same rules when it comes to filing tax returns. 

They will need to use the Schedule C form unless they’ve opened their business as a corporation.

Which car-related expenses can be written off

Which car expenses are eligible for a tax write-off depends on how you calculate your mileage deductions. The hard rule is that any and all car expenses you write off must be directly related to your business and you need to be able to prove it with documentation. 

Car expenses also need to be ordinary and necessary enough to not appear frivolous to the IRS. For example, writing off the cost of repairing a flat would not raise eyebrows, but these expenses would:

  • luxury car upgrades (e.g., high-end sound systems, custom paint jobs)
  • fines and penalties (e.g., parking tickets, traffic violations)
  • depreciation on a vehicle above the luxury car limit set by the IRS

Using cents-per-mile 

For the cents-per-mile method, you can write off business mileage only.

Simply take the business mileage you drove for the year and multiply it by the standard mileage reimbursement rate provided by the IRS. Voilà, your mileage deduction number is ready. 

The IRS calculates its reimbursement rate to account for the ever-changing costs related to vehicle usage (fuel, insurance, maintenance, repairs, registration). This rate is updated every year — occasionally more often, depending on economic conditions.  

Using the actual expenses method

The actual expense method lets you deduct the true costs of driving a vehicle for a business, dollar for dollar, including:

  • fuel
  • depreciation
  • maintenance
  • repairs
  • tires
  • registration
  • insurance
  • parking and toll fees

You’ll need to track and record all of these expenses in order to deduct them on your taxes. 

In addition, the actual expense method also requires you to calculate the business use percentage of your vehicle. 

Keep in mind

If you choose the actual expense method in your first year of claiming mileage deductions, you’ll have to keep using this method for that vehicle every year.

Writing off car expenses with the cents-per-mile method 

Mileage tracking is crucial regardless of the method used to calculate car expenses, but it’s the first number (out of two) you need to calculate a tax write off with cents-per-mile.

Here’s exactly what you need to track:

  • Starting odometer reading for your vehicle at the beginning of every year
  • Total business mileage for every business-related drive
  • Destinations (to and from) for every business drive
  • Dates of each business drive
  • Purpose of every business drive

Keeping tabs on all of these variables would normally require a mileage log of some kind. But since updating a log takes time, most people prefer to use an automatic mileage tracking app, like MileIQ. 

In this case though, MileIQ tracks much more than miles — every tracked drive will also have the to and from addresses, dates, and the deduction value based on the standard mileage rate — you just need to add in the purpose of a drive and parking or toll fees. 

You can classify each drive as business or personal and the app will filter all of your work drives into a mileage report you can review at the end of the year and send to your accountant. 

Once you have your business mileage for the year, multiply it by the standard mileage rate and you’re done. If you’re a MileIQ driver, this will be calculated for you and you just need to verify the drives in your report.

Cents-per-mile pros and cons

Pros

Cons

No expenses to track — you only need mileage

Your other car expenses will not count toward deductions

Simple to calculate

You’ll need to keep an eye on rate changes from the IRS, if you don’t use an automatic tracker

No guesswork — the standard rate is provided to you by the IRS

Writing off car expenses with the actual expense method

If you’re using the actual expense method, mileage is just a small piece of the puzzle. In addition to tracking business miles with an app like MileIQ, you’ll also need to keep receipts of every other business-related car expense. 

However, the true challenge of using the actual expense method is determining the business use percentage of your car. 

Business use of a car is the percentage of your total mileage driven for business purposes.

Total mileage/business mileage = business use percentage

Most self-employed people use their personal vehicles for work, so tracking which drives are strictly business can get tricky. Does your daily drive path look something like this?: Home to office supply store to daycare to client meeting to coffee shop to coworking space to grocery store to home.

If yes, then figuring out which drive is business and which is personal will get tricky, unless you use a mileage tracker that lets you classify each leg of your journey. 

You’ll need to multiply every car expense by the business use percentage to figure out how much to write off. 

For example, if you purchased a set of tires for $500 and your business use percentage was 50%, your deductible expense is only $250. 

Actual expenses pros and cons

Pros

Cons

Highly accurate — if you’re a diligent record-keeper

You need to keep records of every car expense

Can result in a higher mileage deduction

Difficult to calculate business percentage for vehicles

Can be hard to justify during an audit w/out documentation

What cars can you write off on taxes?

Section 179 of the IRS tax code allows businesses to deduct the total purchase price of qualifying equipment, including vehicles, in the year they are purchased or leased. However, it’s worth noting that while the type of vehicle doesn’t matter that much, its weight does.

Cars with a gross vehicle weight (GVW) of 6,000 pounds or less have lower deduction limits compared to heavier vehicles. Vehicles weighing more than 6,000 pounds (such as certain SUVs and trucks) may qualify for higher deduction limits under Section 179, making them more advantageous for businesses seeking significant tax deductions.

Most importantly, vehicles must be used primarily for business purposes (more than 50% of the time).

How do you buy a car and write it off?

If you want to get a Section 179 deduction on a newly purchased car, you need to remember to consistently track business mileage throughout the year. You’ll qualify if your business use percentage is 50% or higher. Your business use percentage will be the basis for calculating the write-off. 

How do I write off a car over 6,000 lbs?

Heavier vehicles (over 6,000 pounds GVW) can potentially qualify for larger deductions because they are considered to have substantial business utility. This weight threshold is crucial for determining eligibility under Section 179 and should be verified before claiming deductions.

If you’ve reached the end of this article and are still wondering if writing off car expenses is worth it, the answer is a resounding yes. There’s some record-keeping involved, but the tax savings, especially for self-employed people will likely pay off. 

Using an app like MileIQ is especially helpful for keeping business mileage separate from personal, and for calculating deductions automatically. In fact, if you use the cents-per-mile method, much of the work is done for you: MileIQ tracks all your miles and updates the mileage rate to the IRS standard. All you need to do is classify drives with a swipe and add a custom purpose to each drive.