When considering the deduction of your vehicle's business use, it is essential to bear in mind that it does not fall under the category of travel expenses. Instead, it pertains to the expenses incurred by your vehicle when it is utilized for business purposes. There are two methods by which you can claim the deduction for business use of your vehicle: either by calculating the actual percentage of business use or by determining it based on mileage.
Under the actual percentage of the business use method, you multiply the total expenses by the percentage your vehicle was used for business purposes. For instance, if the business use of your vehicle was 50%, then half of your car loan
interest, depreciation, gas, oil, tires, repairs and etc. would be deductible.
Under the mileage method, you can deduct 65.5 cents per mile (for the rest of 2023) driven for business purposes this year.
Which approach is the best for you?
If you are going to put on a lot of business miles, and your car is generally a lower purchase cost then the mileage method is the way to go.
This method is commonly used by delivery and ride-sharing services business owners.
If you will not have a lot of business miles or your vehicle is a more expensive car used primarily for business, then the actual percentage of business use method produces a higher deduction.
Keep in mind that having a dedicated business vehicle (100% business use) might generate larger tax savings. Certain business vehicles qualify for 80% or 100% write off in 2023 if they meet criteria set by the IRS.