What Vehicle Expenses Can Self-Employed Individuals Deduct?
Self-employed individuals have a lot of options when it comes to deducting expenses for their vehicle to offset income from the business. In this video we are going to review:
1) What vehicle expenses can be deducted: Mileage, insurance, payments, registration, etc.
2) Business Use Percentage
3) Buying vs Leasing a Car Deduction Options
4) Mileage Deduction Calculation
5) How Depreciation and Bonus Depreciation Works
6) Depreciation recapture tax trap
7) Can you buy a Ferreri through the business and deduct it? (luxury cars)
8) Tax impact if you get into an accident and total the vehicle
Self-employed individuals have a lot of options when it comes to deducting expenses for their vehicle to offset income from the business. In this video we are going to review:
What vehicle expenses can be deducted: Mileage, insurance, payments, registration, etc.
Business Use Percentage
Buying vs Leasing a Car Deduction Options
Mileage Deduction Calculation
How Depreciation and Bonus Depreciation Works
Depreciation recapture tax trap
Can you buy a Ferreri through the business and deduct it? (luxury cars)
Tax impact if you get into an accident and total the vehicle
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQs):
What vehicle expenses can self-employed individuals deduct?
Self-employed individuals can generally deduct expenses related to the business use of their vehicle, including gas, insurance, registration, maintenance, repairs, lease payments, and loan interest. You can use either the standard mileage method or the actual expense method—but not both for the same vehicle in a given year.
How do you calculate the business-use percentage?
If your car is used for both personal and business purposes, only the business portion is deductible. To determine your business-use percentage, divide your business miles by your total annual miles. For example, if you drove 20,000 miles during the year and 12,000 were for business, you can deduct 60% of eligible expenses.
Is it better to buy or lease a car for business?
Both options can be tax-efficient. Lease payments are deductible based on the business-use percentage, but leased cars don’t qualify for depreciation. Purchased vehicles allow you to claim depreciation (including bonus depreciation and Section 179 deductions), but you can’t deduct the full purchase price in one year unless it qualifies for special rules.
How does the mileage deduction work?
For 2025, the IRS standard mileage rate is set annually (e.g., 67 cents per mile in 2024). Simply multiply your total business miles by that rate. This rate includes depreciation, gas, maintenance, and insurance, so you can’t deduct those costs separately if you use this method.
How does vehicle depreciation work—and what’s bonus depreciation?
If you purchase a vehicle, you can depreciate the business-use portion of its cost over several years. Heavy vehicles (over 6,000 pounds) may qualify for accelerated write-offs, including 80% bonus depreciation in 2025 or full expensing under Section 179 up to certain limits. However, “luxury” cars like Ferraris or Lamborghinis are subject to strict IRS caps that limit the deduction.
What happens if the vehicle is sold or totaled?
If you sell or total a business vehicle that has been depreciated, you may owe “depreciation recapture” tax on the portion of depreciation claimed. Essentially, you pay ordinary income tax on the amount of depreciation you previously deducted, up to your gain on the sale or insurance payout.
