Can I deduct my business car payments on my taxes?
Title: Can I deduct my business car payments on my taxes? 1 I just bought a new car which I use exclusively for my small business operations. I'm wondering if I can deduct the monthly car payments on my taxes? They run me about $450 each month. I already know I can deduct things like maintenance, repairs, gas, and parking fees for business vehicles, but I'm not sure about the actual car payments themselves. Has anyone had experience with this? My accountant is on vacation and I'm trying to plan ahead for next quarter's estimated taxes.
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Alfredo Lugo
8 You actually have two options when it comes to business vehicles: the standard mileage rate or actual expenses method. With the standard mileage rate (currently 67 cents per mile for 2024), you'd track all your business miles and multiply by that rate. This covers depreciation, gas, insurance, and repairs all in one simple deduction. You can't deduct the car payments separately with this method. With the actual expenses method, you track all your vehicle expenses (gas, insurance, repairs, etc.) AND you can deduct depreciation of the vehicle, but not the car payments directly. The reason is that the car payments include both principal (which is a capital asset purchase) and interest. You can deduct the interest portion of the payments, and you can deduct depreciation of the vehicle over several years through either Section 179 or regular depreciation.
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Alfredo Lugo
•12 If I choose the actual expenses method, how do I figure out how much of my payment is interest vs principal? My car payment statement doesn't break that down clearly.
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Alfredo Lugo
•8 You'll need to look at your loan agreement or contact your lender to get an amortization schedule. This will show exactly how much of each payment goes to principal versus interest. Most auto loans are simple interest loans, so early in the loan term, a larger portion goes to interest. For the depreciation part, you'll likely use Form 4562. If you use the vehicle 100% for business, you can deduct the full depreciation. If it's partial business use, you'd need to calculate the business percentage.
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Alfredo Lugo
5 I went through this exact same headache last year with my work truck! I was so confused until I discovered taxr.ai (https://taxr.ai) which really saved me hours of frustration. I uploaded my car loan docs and it automatically identified the interest portions of my payments that were deductible, plus it calculated all my depreciation options and showed me whether standard mileage or actual expenses would be better in my situation. I actually discovered I could take a Section 179 deduction for a portion of my vehicle in the first year, which was way better than the standard depreciation schedules. The software walked me through every step and even helped me understand how to document everything properly in case of an audit.
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Alfredo Lugo
•16 Does it work if I'm leasing instead of buying? My CPA says I can deduct lease payments but there's some weird "lease inclusion" thing he mentioned that I don't understand.
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Alfredo Lugo
•19 I'm skeptical of these tax tools - they seem to just spit out generic advice. How did it handle the luxury auto limits? My vehicle is over the threshold and my accountant had to do special calculations.
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Alfredo Lugo
•5 It absolutely works for leases! The tool explains the "lease inclusion amount" which is basically an adjustment you have to make if you're leasing a more expensive vehicle. It's the IRS's way of making sure people don't avoid the luxury car depreciation limits by leasing instead of buying. For luxury vehicles, the system recognizes when your vehicle exceeds the thresholds ($60,800 for 2024) and automatically applies the correct depreciation limits. It showed me side-by-side comparisons of regular depreciation, bonus depreciation, and Section 179 with the adjusted limits. It even factored in the special higher limits for SUVs over 6,000 pounds if that applies to your vehicle.
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Alfredo Lugo
19 I was really skeptical about using taxr.ai at first, but after trying it out based on this thread, I'm genuinely impressed. I uploaded my lease agreement, and it immediately identified that my BMW qualified as a "luxury auto" under IRS rules. It showed me exactly how much of each lease payment I could deduct and calculated the lease inclusion amount automatically. What I appreciated most was how it explained everything in simple language - I finally understand why I can't deduct the entire lease payment! It also helped me set up a proper mileage log system that will hold up in an audit. Worth checking out if you're dealing with vehicle deductions.
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Alfredo Lugo
7 I had a nightmare experience trying to get answers from the IRS about vehicle deductions last year. After being on hold for 3+ hours, I finally gave up and tried https://claimyr.com (check out their demo: https://youtu.be/_kiP6q8DX5c). They got me connected to an actual IRS agent in about 15 minutes who explained exactly how vehicle depreciation works with business use. The agent clarified that while I couldn't deduct the full car payment, I could depreciate the vehicle over 5 years (or take section 179 in some cases) AND deduct the interest portion of my payments. Completely changed my tax strategy and saved me thousands. I never would've figured this out without actually speaking to someone who could look at my specific situation.
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Alfredo Lugo
•3 Wait, how does this work? They somehow get you through the IRS phone system? That seems impossible with how backed up they always are.
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Alfredo Lugo
•19 This sounds like a scam. No way someone can magically get through to the IRS when their phone lines are jammed. I've tried calling dozens of times about my business vehicle and never got through.
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Alfredo Lugo
•7 They use a system that monitors the IRS phone queues and calls you when they secure a spot in line. It's not magic - just smart technology that does the waiting for you. The service is completely legitimate. They don't actually talk to the IRS for you or access any of your personal information. They just secure your place in line and connect you when an agent is available. It saved me literally hours of my time, and the IRS agent I spoke with gave me information specific to my situation that I couldn't find online.
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Alfredo Lugo
19 I need to publicly eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway because I was desperate for answers about my vehicle deduction situation. To my complete surprise, I got connected to an IRS agent in about 20 minutes. The agent walked me through exactly how to handle my specific situation with my business SUV, confirmed I could take the Section 179 deduction since my vehicle was over 6,000 pounds, and explained how to properly document business use. This was after spending WEEKS trying to get through on my own. Sometimes being proven wrong is the best outcome - saved me a ton in taxes!
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Alfredo Lugo
11 One thing nobody's mentioned yet - if your business is an S-Corp and the company doesn't own the car (you do personally), you need to be extra careful. You'll need to set up an accountable plan to reimburse yourself for business mileage or actual expenses. I learned this the hard way!
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Alfredo Lugo
•1 I actually do have an S-Corp! Can you explain more about this accountable plan? My business doesn't own the car - I do personally, but I use it 100% for business purposes.
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Alfredo Lugo
•11 An accountable plan is basically a formal arrangement where your business reimburses you for expenses incurred on its behalf. For vehicles, your S-Corp would reimburse you at the standard mileage rate (67 cents per mile in 2024) for business miles driven. You need to keep detailed mileage logs and submit them to your company regularly (monthly is ideal). The company then cuts you a reimbursement check. This is non-taxable to you and deductible for the business. Without an accountable plan, vehicle reimbursements could be considered taxable wages!
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Alfredo Lugo
22 Has anyone been audited over vehicle deductions? My friend claimed his entire car payment and got flagged for audit. I'm terrified of making that mistake.
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Alfredo Lugo
•8 Vehicle deductions are definitely an audit red flag, especially if you claim 100% business use for a single vehicle. The IRS knows most people use their only vehicle for at least some personal driving. The key is documentation. Keep a detailed mileage log (there are apps for this) that records the date, business purpose, starting/ending odometer, and destination for every business trip. If you use actual expenses, keep receipts for EVERYTHING and calculate the business percentage accurately. Never try to deduct the full car payment - only the interest and depreciation components as explained above.
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