Everything You Need to Know About Deducting Your Ride

Whether you run a small business or own a large company, the business vehicle deduction could be one of your biggest opportunities at tax time. Every time you meet with clients, deliver an order, or drop off a package, you take on costs that may be tax-deductible. Here’s what you need to know.

Understanding the Business Vehicle Deduction

When it comes to your vehicle, you can take one of two types of deductions. The first is the standard mileage deduction. To use it, track every mile you drive for work and multiply by the IRS rate for that year.

The IRS updates this rate annually. For example, the 2025 IRS standard mileage rate is 70 cents per business mile. That number is meant to cover all wear, tear, maintenance, and depreciation on your vehicle.

Actual cost method

Alternatively, you can deduct a percentage of your actual vehicle costs. This can include taxes on the vehicle, oil changes, new tires, loan interest, insurance, and more. IRS Publication 463 walks through the rules in detail.

Under this method, divide your documented business miles by your total miles for the year. As a result, you’ll get the percentage of your expenses (your “basis”) that you can deduct.

Which method should you use?

In general, a fuel-efficient car often pencils out best on the standard mileage deduction. However, if you put a lot of work into the vehicle this year — new tires, a headlight, a tune-up — actual expenses may save you more. Try it both ways. SCORE has a helpful comparison if you want to dig deeper. Either way, document everything.

For more tax-saving ideas, see our top 10 tax deductions for childcare businesses.

Depreciating Your Car

You can also deduct depreciation on a vehicle you own — but only if you choose the actual-cost method. Depreciation lets you deduct a percentage of the vehicle’s value each year until you’ve recovered the purchase price. The only requirements: you own the vehicle, you use it for business, and you deduct the related expenses.

Note: you cannot count depreciation if you use the standard mileage deduction.

Depreciation methods

There are several depreciation paths, including:

• MACRS – the standard accelerated depreciation system
• Section 179 – allows you to expense the full cost in year one, within limits
• Bonus depreciation – additional first-year write-offs (rules change frequently)

For the current rules and limits, see IRS Publication 946. Talk to your accountant about the best path for your situation.

Deducting Your Uber, Lyft, Taxi, or Ride Share

Sometimes you’ll travel by something other than your own vehicle — for example, a taxi, Uber, or Lyft. Those costs may also be tax-deductible.

If you’re self-employed, deduct ride-share trips on your Schedule C as a travel expense. However, if you’re a W-2 employee, the rules tightened significantly with the 2017 Tax Cuts and Jobs Act. As a result, unreimbursed employee travel is generally no longer deductible on your federal return through 2025. Always reimburse yourself through your business when possible.

Leasing a Business Vehicle

If you lease a vehicle for work instead of buying, you can still take a business vehicle deduction. However, you cannot claim depreciation on a leased car. Instead, you can deduct the lease payment if you choose the actual-cost method.

For example, if you use the vehicle 100% for work, you deduct the full lease payment. Meanwhile, if you use it 50% for work, you deduct 50% of the payment. The IRS also requires a small “lease inclusion” adjustment for higher-value vehicles — your accountant can run the numbers.

For childcare-specific guidance, read our piece on buying or leasing a vehicle for your daycare business.

Recordkeeping Makes the Business Vehicle Deduction Work

Finally, your vehicle could be one of your biggest deductions — but only if your records hold up. Every method requires an accurate log of:

• The miles you drove
• The dates of each trip
• The business purpose of each trip

Without that documentation, the IRS can disallow the deduction. For more on building strong financial habits, read our guides on bookkeeping basics and tax season tips. If you also work from home, our home office deduction guide pairs nicely with this one.

Want help making sure you’re capturing every deduction you’re entitled to? Schedule a discovery call with the team at Honest Buck Accounting.