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Small business owners: Your vehicle could be a bigger tax write-off than you think

If you used a vehicle for your business during 2025, you may be able to claim valuable tax deductions on your 2025 tax return.

Many small business owners use their personal vehicle for work. Whether that’s driving to client meetings, picking up supplies, or traveling between job sites. The IRS allows businesses to deduct certain costs tied to business use of a vehicle.

However, the rules can be a little complicated. Your deduction may depend on:

• How much the vehicle is used for business vs. personal driving

• The type and weight of the vehicle

• Which deduction method you choose

Here’s a simple breakdown of how it works.

Option 1: Deduct your actual vehicle expenses

One option is to deduct the actual costs of operating your vehicle for business. Eligible expenses can include:

• Gas

• Oil

• Tires

• Insurance

• Repairs and maintenance

• Vehicle registration and license fees

You’ll need to track these expenses and document how much of your driving is for business.

If you use this method, you can also deduct depreciation, which allows you to recover part of the cost of the vehicle over time.

Under standard depreciation rules, the IRS generally allows you to deduct the vehicle’s cost over six years:

• Year 1 — 20%

• Year 2 — 32%

• Year 3 — 19.2%

• Year 4 — 11.52%

• Year 5 — 11.52%

• Year 6 — 5.76%

If your vehicle is used 50% or less for business, depreciation must be calculated using the straight-line method instead.

“Luxury vehicle” limits may apply

For many passenger vehicles, the IRS limits how much depreciation can be deducted each year. These limits change periodically due to inflation.

For vehicles placed in service in 2025, the maximum deductions are generally:

• Year 1 — $20,200
  ($12,200 if first-year bonus depreciation is not claimed)

• Year 2 — $19,600

• Year 3 — $11,800

• Each additional year — $7,060 until the vehicle is fully depreciated

If the vehicle is used for both personal and business driving, these limits are reduced proportionally.

Heavier vehicles may qualify for larger deductions

Larger vehicles such as heavy SUVs, pickups, and vans may qualify for more favorable tax treatment.

If a vehicle has a gross vehicle weight rating (GVWR) over 14,000 pounds, businesses may be able to deduct the entire cost in the first year using bonus depreciation or Section 179 expensing.

For vehicles weighing between 6,000 and 14,000 pounds, a reduced Section 179 deduction limit of $31,300 applies for 2025.

To qualify for these deductions, the vehicle must be used more than 50% for business purposes.

Option 2: Use the standard mileage rate

Instead of tracking every expense, many small business owners choose the standard mileage method.

For 2025, the IRS mileage rate for business use is: 70 cents per mile (This rate increases to 72.5 cents per mile in 2026.)

This rate already includes factors like:

• Fuel

• Maintenance

• Repairs

• Insurance

• Depreciation

Because depreciation is built into the mileage rate, you can’t also claim depreciation for the same vehicle.

To use this method, you still need to keep a mileage log showing:

• Date of each business trip

• Destination

• Business purpose

• Miles driven

Which method should you choose?

Choosing the right deduction method depends on several factors, including how much you drive and the cost of your vehicle.

A few key rules to keep in mind:

• If you start with the actual expense method, you cannot switch to the mileage method later.

• If you start with the mileage method, you can switch to the actual expense method in a future year, but depreciation must be calculated using the straight-line method.

If you lease a vehicle, the deduction rules are different as well.

The bottom line

Vehicle deductions can provide meaningful tax savings for many small business owners — but the rules can be complex, especially when depreciation and business-use percentages are involved.

A tax professional can help you determine:

• Which deduction method is most beneficial

• How to properly track your expenses or mileage

• How to plan ahead for future vehicle purchases

Have questions about claiming 2025 vehicle deductions or preparing for 2026 tax planning? Your local Padgett office is ready to help!

The post Small business owners: Your vehicle could be a bigger tax write-off than you think appeared first on Padgett.