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Tax Deductions Available When Purchasing or Leasing a Vehicle for Business
Navigating tax deductions for business vehicles? Find out whether mileage, lease payments, or depreciation offers the best tax-saving strategy for you.
Building the right tech stack is key
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How to choose the right tech stack for your company?
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What to consider when choosing the right tech stack?
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What are the most relevant factors to consider?
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What tech stack do we use at Simpletech?
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Want the Cliff-Notes?
The IRS gives you the option of deducting the cost of mileage at 58.5 cents per mile (only available to sole proprietorships), deducting lease payments or depreciation (see our article on Lease vs. Purchase to find what's right for you), and deducting the actual maintenance and operating expenses.
Mileage Deduction
The IRS allows you to choose the standard mileage approach, which allows you to deduct the mileage for business miles driven at a rate of 58.5 cents per mile driven (for 2022). So, if you drove 1,000 miles for business in the month of May, you’d be able to deduct $585.
An important reminder, the mileage deduction is only available for sole proprietorships filing a Schedule C.
Corporations and Partnerships must record actual auto expenses (such as gas, oil changes, repairs, etc.) - see below.
Lease Payments
If you currently lease your business vehicle, the IRS allows you to deduct the cost of monthly lease payments.
An important note: You will not be allowed to deduct any cost for depreciation if you lease the vehicle.
Depreciation
If you purchased your vehicle, the IRS allows you to deduct the cost of depreciation. So if you purchase a vehicle for $100,000 and depreciate it over a 5-year useful life, you will be allowed to deduct $20,000 per year.
Make sure to read our article on the Section 179 deduction, which would allow you to deduct the full $100,000 in year 1 depending on the type of vehicle you purchase!
Maintenance and operating expenses
The IRS allows you to deduct expenses, such as gas, oil changes, repairs, and tires purchased for a leased or owned vehicle.
As mentioned above, if your business is a Corporation or Partnership, you will need to keep proper books and records with itemized receipts to prove your actual expenses associated with maintenance and operating costs.
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