Kelly Bullis
Does your business require the use of a vehicle? Service trucks or vans? Vehicles for transporting clients or customers, etc.
There are two methods for computing deductible expenses related to a vehicle. Actual costs or standard mileage allowance. The easiest is the standard mileage allowance. All you need to do is keep track of actual business mileage driven, multiply it by the IRS rate (for 2025, 70 cents a mile). The actual is exactly what its name implies. All actual expenses related to providing a vehicle. Gas, oil, maintenance, tires, registration, insurance, carwashes, etc., and depreciation. But, you need to keep track of all those expenses, which can become a tedious chore.
For the purchase of a new vehicle for your business (at least new to you if not actually brand new), the depreciation can be complicated. If your vehicle qualifies as a luxury vehicle (anything less than 5,000 pounds gross vehicle weight), you are limited to $12,500 for the first year plus bonus depreciation of $8,000. Each following year for a total of five years, there are fixed amounts that are smaller and smaller. If your vehicle is not a luxury auto, then there is no depreciation limit and instead, you could take section 179 depreciation for 100% of the cost of the vehicle in year one. (Side note: All Teslas weigh more than 5,000 pounds. Actually, many EVs and hybrids do. The batteries are heavy! I personally would love to do an Uber or Lyft ride in a Tesla Cybertruck.)
Example: 100% business use non-luxury vehicle costing $70,000, with other related costs to operate totaling $5,800 driven for 12,000 miles yields a first year deduction of $75,800. If you took the annual mileage allowance instead, your year one deduction would be $8,400.
In year two, the same vehicle, same 12,000 miles, same actual expenses to operate. Under the actual expense deduction, you get to deduct $5,800 actual costs to operate, where the mileage deduction is still $8,400. At that rate, it would take you over 26 years before the total standard mileage deduction would overtake the actual expense deduction route.
An alternative would be, if you started with the standard mileage route, perhaps on a used vehicle to start with. As the vehicle gets older, the maintenance costs go up and at the point that the actual costs are more than the standard mileage, you can switch to deducting actual expenses instead of standard mileage. NOTE: You cannot switch from actual expenses to standard mileage… nice try!
There are some similar rules when dealing with leased vehicles instead of a purchased one. Leasing a vehicle can be advantageous if you usually require a brand new vehicle every couple of years, but the deductions would not be as good as a purchased vehicle.
Have you heard? Job 34:4 says, “Let us choose what is right; let us know among ourselves what is good.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 775-882-4459. On the web at BullisAndCo.com. Also on Facebook.