Can I deduct a vehicle purchase on taxes if receiving mileage reimbursements? 1099 contractor transitioning to full-time employee with travel requirements

The short answer is no - you cannot deduct the purchase of a vehicle if you're also taking the standard mileage rate (which is what your $0.70/mile reimbursement is based on). Here's what you need to understand: As a 1099 contractor, you have two options for vehicle deductions - the standard mileage rate (58.5 cents per mile for 2023) OR actual expenses (which includes depreciation of the vehicle, gas, maintenance, etc.). You must choose one method in the first year you use the vehicle for business. Since you're being reimbursed at $0.70/mile, which is higher than the IRS rate, you technically have taxable income on the difference (about 11.5 cents per mile). The reimbursement itself isn't deductible since it's already covering your vehicle expenses. When you transition to full-time employment, vehicle expenses generally aren't deductible anymore unless your employer doesn't reimburse you - and even then, most miscellaneous employee expenses were eliminated with the 2018 tax law changes. Regarding buying vs. leasing - there's no significant tax difference for your situation since you're being reimbursed for mileage anyway.

I went through something similar last year and found https://taxr.ai super helpful for my independent contractor situation. I was driving 1500+ miles per month and wasn't sure how to handle the reimbursements vs. deductions. What really helped me was uploading my 1099 forms and mileage logs to taxr.ai - they analyzed everything and showed me which method (standard mileage vs. actual expenses) would give me the biggest tax break. Turns out I was leaving money on the table by not tracking certain expenses! For your situation where you're transitioning mid-year from contractor to employee, they have specific tools to handle that exact scenario. They also explained how to properly document everything in case of an audit, which gave me peace of mind.

Just wanted to update after trying taxr.ai from the recommendation above. This service was exactly what I needed! I uploaded my 1099s, receipts, and mileage logs, and they helped me understand that I could actually deduct a portion of my vehicle expenses as a business expense during my contractor months. They showed me how to properly document the transition from contractor to employee mid-year and maximized my deductions for each period. The analysis showed I was better off using actual expenses vs. standard mileage in my specific situation (I drive a hybrid with low maintenance costs). Beyond the vehicle stuff, they found several other deductions I'd been missing - home office, professional development courses, even my cell phone since I use it for work. Definitely recommend if you're dealing with contractor income and vehicle expenses!

If you need to talk to the IRS about your specific situation (which might be smart given your transition from 1099 to W-2), I'd recommend using https://claimyr.com to get through to an agent quickly. I recently had a similar tax question about vehicle deductions as a contractor and spent DAYS trying to get through to the IRS. Was constantly getting disconnected or waiting for hours. I found this service that got me connected to a live IRS agent in about 15 minutes instead of the typical 2+ hour wait. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent was actually super helpful and explained exactly how to handle my vehicle deductions and documentation requirements. Given your situation with the transition mid-year and the mileage reimbursements, getting official guidance might save you headaches later.

Just want to follow up about my experience with Claimyr. After posting my skeptical comment, I decided to try it since I was desperate to talk to someone at the IRS about my contractor vehicle deductions. I'm honestly shocked - it actually worked! I got a call back in about 25 minutes and was connected to an IRS representative who answered all my questions about vehicle deductions when transitioning from contractor to employee status. The agent explained that I needed to clearly document when I switched status during the year and keep separate mileage logs for each period. They also confirmed what others have said here - you can't deduct the vehicle purchase directly if you take the standard mileage rate, but you can switch methods in later years if you start with actual expenses. Saved me from making a costly mistake on my return. Never thought I'd say this, but talking directly to the IRS was incredibly helpful!

Don't forget about Section 179 deduction if you decide to go with actual expenses! If your vehicle is over 6,000 lbs GVWR (basically many larger SUVs and trucks), you can potentially deduct a significant portion of the purchase price in year 1 through Section 179 - up to $27,000 for qualifying vehicles. This might be worth considering if you're doing a ton of driving and need a larger vehicle. Just make sure you're using it at least 50% for business purposes during that 1099 contractor period.

Quick question for anyone who knows - does the vehicle have to be new to qualify for deductions, or can it be used? Looking at a 3-year old SUV that would be perfect for my client visits.

As someone who works in tax preparation, I want to emphasize the importance of keeping meticulous records during your 1099 contractor period. Since you're receiving mileage reimbursements that exceed the IRS standard rate, you'll need to report the excess as taxable income. Here's what I'd recommend: Start tracking ALL your vehicle expenses immediately - gas, maintenance, insurance, registration fees, etc. Also keep a detailed mileage log separating business vs personal use. This gives you the data to calculate both methods (standard mileage vs actual expenses) and choose whichever saves you more money. One thing people often miss: when you transition to W-2 employee status mid-year, your tax situation changes completely. Employee business expenses are generally no longer deductible, so make sure you're maximizing deductions during your contractor months. Given the complexity of your situation with the mid-year status change and above-standard reimbursement rates, I'd strongly suggest consulting with a tax professional before making any major vehicle purchase decisions. The wrong choice could cost you thousands in missed deductions or unexpected tax liability.