Can I Do a Tax Write Off for a Fully Paid Car When Using It to Advertise?
by Fraser Sherman; Reviewed by David Weedmark, MCSE; Updated November 15, 2019
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The cost of driving your car while on business is a legitimate tax deduction, even after you've paid off the car. Unfortunately, the federal definition of "business travel" isn't as generous as some business owners imagine. For example, when you take a pleasure drive, you can't claim it as a business trip just because you have your company logo on the side of the car.
You can claim a deduction for business miles when driving from your office for client meetings, job site visits, business errands and similar trips. Neither recreational driving nor commuting from home is deductible. Putting advertising on your car or making business phone calls while you drive doesn't make a journey a business trip.
Tax Write-Off of Car Purchase
If you buy a car that you intend to use for business, you can write off some of the purchase price with the federal Section 179 deduction. You usually write off business purchases through depreciation, but Section 179 allows you to deduct the entire amount upfront. When you take a tax write-off for a car purchase or any business vehicle, the IRS sets limits:
If you use the car for business and personal use, you can only deduct part of the price. If, say, you buy a $23,000 vehicle and use it 75% of the time for business, you can only write off $17,250.You have to use the car at least 50% of the time for business to take Section 179.You can only write off a maximum of $25,000 for SUVs and similar vehicles.The maximum you can claim for all Section 179 write-offs in a given year is $1 million. If you apply the write-off to multiple assets the year you buy the car, that may reduce what you claim for the car.If you trade in your old car as part of the purchase, you can't deduct the trade-in value, only the cash amount involved.You must take the deduction the first year you buy the car. If you bought the car last year but only start using it for business this year, you can't claim Section 179.
If you can't write off the entire purchase price, you can claim depreciation on the car every year to reflect the loss of value due to aging. You can claim a deduction for business driving even if you take a Section 179 write-off on the car.
Using Your Car for Business
The costs of driving your car are legitimate business expenses for an S corporation, a partnership, a sole proprietorship or any other business structure. You can take them whether you're still making payments on the car or you've already paid it off. However, you can only claim a deduction for what the IRS considers business travel:
Commuting from your home to your place of business is not a deductible expense. You may feel that it qualifies as driving for business, but the IRS says definitely not.If you have more than one workplace, driving between them qualifies. For example, if you own three retail outlets, travel between them is deductible.Going from your workplace to meet with or visit clients is deductible.Commuting from home to a temporary workplace is deductible. For example, a lawyer's drive from home to office isn't deductible. However, If she spends a couple of weeks at the courthouse, the drive between the courthouse and home is a legitimate write-off.If you have a home office, driving to meetings or job sites is deductible. Your home office has to be the primary administrative center of your business to claim the write-off. Putting advertising decals or your company logo on the car does not turn your morning commute or a pleasure drive into a business trip.Taking business calls while you drive does not turn a nonqualifying trip into a business drive.Carrying around items you need for your job, such as tools or a laptop, does not a business trip make. If you incur added expenses, such as renting a trailer to haul equipment behind your car, those costs are deductible.
Do not try to con the IRS by telling them you use the car 100% for business travel if you don't. The IRS is onto the trick and looks at such claims suspiciously, particularly if the car is the only one you own.
Two Ways to Claim Expenses
The IRS gives you two options for writing off your driving expenses. You can deduct a set amount per mile or deduct your actual expenses for business travel.
Per mile: Figure out how many miles you drive for business and multiply that number by the IRS mileage rate. In 2019, the rate is 58 cents per mile, up from 32.5 cents at the start of the millennium. Actual expenses: Keep track of what you spend on your car, including lease payments, depreciation, repairs, oil, gas, new tires and maintenance. If, say, 60% of your driving is for business, multiply your expenses by 60% to get your write-off.
You can always deduct actual expenses, but tax law may disqualify you from taking the per-mile option because:
You have to pick the per-mile option the first year you use the car for business. You can switch from per-mile to actual expenses, but not the other way around.If you use five or more cars for business at the same time, you can't claim per-mile expenses. You can't take the per-mile allowance if you claimed a Section 179 write-off on the car or use any depreciation method other than a straight-line write-off.
Recording Your Mileage
If you're ever audited, the IRS looks at your business travel to see if your deductions hold up. Having records of your driving, whether in an app or a notebook, can prove you're in the right. The IRS wants to know:
How many miles the trip took;Where you went;The date of the trip;The business purpose you drove for;The total miles you drove the car during the year; andWhat you spent, with records, if you claim actual expenses.
You don't necessarily have to record this information for every trip. If you have a regular weekly sales route, for example, you can record the mileage once and then note down the later dates you went on that route.