How do I deduct rental car expenses when I rented different vehicles weekly for my sole proprietorship?

Thanks for the info! For the actual expense method, would I need to track mileage for each individual rental car, or is it enough to have an overall business percentage that I apply to all rentals? I have all the rental receipts but my mileage tracking hasn't been super detailed for each specific vehicle.

Ideally, you should track the mileage for each individual rental period to establish the business-use percentage for that specific rental. The IRS prefers contemporaneous records - meaning tracking as you go rather than estimating later. If you didn't keep detailed records for each rental, you could potentially use a representative sample of rentals where you do have good records to establish your business percentage, combined with appointment calendars, client records, and other business documentation to substantiate your business usage. This isn't ideal, but it might work if you have enough supporting evidence of your business activities during those rental periods.

Does it work for other vehicle situations too? Like if I use my personal vehicle sometimes and rentals other times? My tax situation is kinda mixed up.

I'm skeptical about these tax tools. How exactly does it determine business vs personal use? The IRS requires actual documentation, not just some algorithm guessing.

It absolutely works for mixed situations with both personal and rental vehicles. The system lets you upload documentation for both types and helps you track them separately but compiles everything for your final Schedule C. As for documentation requirements, that's exactly what makes it valuable - it doesn't guess at all. It guides you through exactly what documentation the IRS requires and helps you organize it properly. You still need to input your business vs personal mileage, but it creates proper logs and formatting that satisfy IRS requirements. It's basically putting everything in the right format with the right calculations rather than trying to guess anything.

Wait, so this service somehow gets you through the IRS phone tree faster? How does that even work? I've spent literally hours on hold only to get disconnected.

Sounds like a scam. Nobody can "cut the line" at the IRS. They probably just keep you on hold while they're on hold with the IRS themselves.

It uses a combination of predictive technology and persistence to navigate the IRS phone systems. Basically, it calls repeatedly using their system until it gets through, then connects you directly to the IRS agent. They don't keep you on hold themselves - you only get the call when they've already reached an agent. The system monitors hold times and call volume patterns to determine the best times to call. I was skeptical too, but after trying for 3 days to get through on my own, I had an actual IRS tax specialist on the line within 25 minutes of using their service. It's especially useful during tax season when wait times can be 2+ hours if you can get through at all.

What about insurance? The rental companies always try to sell that additional coverage. Is that deductible as part of the rental expense if I use the actual expense method?

Yes, the additional insurance or coverage options you purchase from rental companies would be considered part of your actual rental expenses, so they would be deductible based on your business-use percentage for that specific rental period. Some business owners overlook this, but if you consistently purchase the additional coverage, it can add up to a significant deduction over the course of a year with weekly rentals. Just make sure the insurance expense is clearly itemized on your rental receipts so it's properly documented.

The luxury auto limits still apply to rentals but in a different way. Since you're deducting actual expenses rather than depreciation, you don't run into the same depreciation caps. However, the IRS can still question whether extravagant or luxury vehicle rentals are "ordinary and necessary" business expenses. In your case, since you mentioned you're renting basic economy cars, this shouldn't be an issue. The IRS is mainly concerned with preventing businesses from fully deducting high-end luxury vehicles. Using standard economy rentals for legitimate business purposes shouldn't trigger any special limitations beyond the normal business-use percentage rules.