The BEST Auto Deductions Strategy for 2025

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Welcome to The Profit Motivator's weekly newsletter! I'm Terri Johnson, a CPA dedicated to helping small business owners navigate the complexities of taxes and improve profitability. This week, we're diving into the auto expense deduction—a crucial topic for many entrepreneurs. Follow along as we break down this essential deduction, highlight potential pitfalls, and provide actionable steps to maximize your tax benefits.

Introduction

Taxes can be a significant source of anxiety and confusion, especially when it comes to deductions for business expenses. As a small business owner, understanding how to claim auto expenses can greatly benefit your bottom line. Whether you're using a vehicle exclusively for business or for both business and personal purposes, knowing the rules is vital.

Deducting Full Auto Expenses
100% Business Use Vehicles - If your vehicles are entirely dedicated to business activities, such as transporting materials or allowing employees to access job sites, you can claim full deductions on all associated expenses. This includes costs like:

• Tires
• Repairs
• Fuel
• Insurance
• Loan Interest
• Depreciation
  
  

Mixed-Use Vehicles

For most small business owners, vehicles are used for both business and personal activities. In these cases, specific actions are necessary to secure deductions:

• Mileage Logs: Keep detailed mileage logs to document business use. This will help you deduct business miles accurately. The IRS asks for this information on your tax return and will request detailed logs if your return is reviewed. Lack of mileage logs usually results in a disallowance of auto deductions, which in turn leads to additional tax, penalties and interest be assessed.
• Tracking Apps: Utilize apps like MileIQ or QuickBooks Online's mileage tracker. These can simplify logging and ensure you have thorough records.
• Dos and Don'ts: Plastering business ads on your car won't convince the IRS of exclusive business use. They qualify as advertising costs, but mileage logs are still crucial to calculate your actual auto deduction at year-end.
  
  

Methods of Claiming Deductions

• Standard Mileage Rate: For 2025, this is 70 cents per business mile. Simply calculate your deduction by multiplying total business miles by this rate. This can add up quickly, even if you are only running occasional errands in your business.
• Actual Expenses Method: Keep track of total vehicle expenses if you drive significant business miles. Deduct a percentage of your expenses based on business use versus total miles driven. This method involves more bookkeeping and keeping receipts, but the end result may be worth the additional time and energy.
• Compare Both Methods: Annually reevaluate whether the standard mileage or actual expenses method benefits you more. As long as you use the standard mileage rate the year you put your car in service, you can switch between the two methods in later years.
• Documentation: Never rely on round estimates. Ensure precise documentation to avoid red flags and possible audits.
  
  

Conclusion

By following the guidelines above and managing your documentation diligently, you can maximize your auto expense deductions. 

Thank you for joining us in this week's edition of The Profit Motivator. I look forward to helping you streamline your finances in our next installment!

Mileage Rates for 2025 - Worth Keeping Mileage Logs!

• Self-employed & business - 70 cents/mile
• Charities - 14 cents/mile
• Medical - 21 cents/mile
• Moving (military only) - 21 cents/mile

Resources

In addition to your mileage log, keep these worksheets handy as a reminder of deductible and non-deductible expenses. Use the tables to record your mileage and other annual expenses for your tax preparer. They may not require proof of the actual mileage log, but they will need to see your mileage totals for the year.

Don't Just Take My Word For It

Check out these links for up-to-date information directly from the IRS.

• IRS Publication 463: Travel, Gift, and Car Expenses
• Standard Mileage Rates - Current and prior years
• IRS Car & Truck Expense Fact Sheet - Rates are outdated, but rules and recordkeeping guidance are accurate

"The entrepreneur always searches for change, responds to it, and exploits it as an opportunity."

-Peter Drucker