Here are four great ways to write off car ownership on your taxes
There’s no doubt that car ownership is expensive. Whether it’s the initial purchase, registration, and insurance, keeping it fueled up, or regular maintenance, nobody would say it’s a financially burden-free part of our daily lives. Though, there are a handful of methods of making car ownership a little easier on the wallet, which range from saving a few hundred dollars, to potentially thousands, and all via something that many regard as a financial (and sometimes emotional) burden in and of itself: Income tax.
Though, there’s a big caveat that doesn’t apply to everybody: Most of the following money-saving methods discussed here are only applicable to self-employed individuals. You know, those of us who need to fill out much more than the IRS’ good ol’ 1040 EZ form. However, there are still some great benefits for any employment status—let’s outline four ways that you could potentially write off car ownership.
Gross vehicle weight rating
Gross Vehicle Weight Rating (GVWR) is a measurement of the entire weight that a vehicle’s chassis can handle, including its own curb weight plus any passengers and all their stuff. Then, thanks to the IRS’ Section 179 for self-employed folks, a trunk and/or bed full of cash, too.
According to tax professionals, Jackson Hewitt, the qualifying GVWR for Section 179 heavy vehicles is over 6,000 lbs. This allows you to potentially write off all of the purchase price. There are a few caveats, though, such as only qualifying for the year of purchase. After that, it follows standard depreciation guidelines.
The best example is the current Mercedes-AMG G63, also referred to as the G-Wagon, G-Wagen, or Big Angry Boxy Boy, and its GVWR is 7,056 lbs. This brute’s become the poster child of rolling around in a big luxury truck for surprisingly little money… as long as those miles are being accounted for business use, of course.
For more on the specifics of this loophole—er, self-employment benefit—consult a tax professional. I’m just here to help get the thinking juices flowing.
General business expenses in motion
Section 179 requires some finesse with the rules that are probably best left for an accountant. But there are other easier-to-follow income tax benefits for those who claim business use of their ride, or rides.
By this, we mean such expenses as: Car insurance, gas, charging, tolls, parking, maintenance and tune-ups, registration fees, interest paid on car payments, depreciation, as well as lease payments and fees. These can really help a small business owner out, as long as they take all of the combined figures above and multiply them by the percentage of business use of the car.
When it comes to figuring out that latter bit, it’s easy: How many miles are spent behind the wheel for business use? If 5,000 miles were used for business, and you drove 10,000 miles that year, that’s 50 percent. But it also gets tricky, as one could come up with some truly creative ways to justify such a percentage.
Again, consult someone with the proper certification in this arena. Especially if you’re including the miles you drove while trying to figure out a weird noise that your car developed, and might be able to write a blog about… which I may or may not have considered doing myself.
Standard mileage rate
This one’s pretty simple and straightforward: Any mileage traveled for work in your personal car—that hasn’t been reimbursed by an employer—could be up for grabs on your yearly income tax. The best part about this deduction is anybody can claim it. You don’t have to be self-employed like all of the write-offs mentioned above, though activities like commuting don’t count. It’s best to visit the hyperlinked IRS website above and learn exactly what kind of mileage counts.
To claim it, multiply the miles traveled by the IRS’ standard mileage rate, which is 65.5 cents per mile for 2023. It may not seem like much, but it could certainly add up, as 1,000 miles traveled for work could be a hearty $665 deduction. But once again, consult a tax professional before running the numbers and penciling this one in on your yearly income tax documents.
Electric vehicle incentives
Tax credits on electric vehicles have been a thing for a few years now, and for any employment status, but 2023’s a bit different. According to the IRS, you could receive as much as a $7,500 credit for purchasing a new EV in 2023, which certainly ain’t nothing. There are a few qualifiers, such as whether it meets the IRS’ defined critical minerals requirement, how many kilowatt hours the battery possesses, as well as some limitations on household income—it gets a little complicated.
Then, MSRP comes into play as well. Vans, SUVs, and pickup trucks can’t exceed $80,000, and any other type of vehicle can’t exceed $55,000. This isn’t the greatest news, as new, non-truck EV prices can exceed that $55,000 figure pretty quickly in 2023.
But you don’t necessarily have to buy new to get a little money back: Used vehicle purchases can qualify for up to $4,000 in tax credits, and PHEVs get a little love, too.
Finally, there are other state-based incentives out there as well. California’s Clean Vehicle Rebate Program was a thing up until recently, which gave consumers who purchased or leased conventional EVs or PHEVs up to $7,500 in tax rebates. There’s no word on whether it will come back, but there are still more localized rebates to look into, so surf the web and see if you qualify based on your own state, county, or city.
Proceed cautiously
If there’s one overarching theme to all of this, it’s to be cautious. Not only so you don’t get in trouble with the IRS, but also so that I don’t get in trouble with you and your lawyer. Use this as a jump-off point, think about how your vehicle’s use could save you a little money on your taxes, save your receipts, record your mileage, and consult a tax professional before diving in. There are some other extra-fine-print methods, too, so be sure to ask plenty of questions.
For even more context regarding writing off vehicle expenses, The Smoking Tire Podcast had a great chat with a CPA about the subject a year or so ago. Check it out: