Skip to Main Content

Tax Smarts 2023 – What You Should Know About the Business Use of an Automobile

With the holidays behind us and a brand spanking new year, it’s time to pull out your calculator, sharpen your pencils, and dust off your records to prepare for that exciting annual tradition known as tax season.

Okay, taxes may not be all that exciting, but saving money on them can be. To help you accomplish that, we’ve teamed up with local experts who will provide valuable insights and guidance on various tax-related deductions and opportunities. In this blog, we share information from Tom Savino, CPA and partner of Bonanno, Savino, Davies & Ganley P.C., on the business use of an automobile.

Let’s get to it.

Business owners love tax deductions. One of the most common and often misunderstood deductions is the business use of an automobile. Business owners, who aren’t tax experts (but play them on Google), will frequently go online to learn how the deduction works. But according to Tom Savino, online resources don’t always tell the whole story about the business use of vehicles, which can get complex.

Here’s some high-level information to make the deduction a little clearer.

Automobile usage can be a great tax benefit for company owners, but it’s not always 100% tax deductible unless the entire vehicle is used for business purposes. That’s usually limited to businesses that have specialty trucks like plumbers and electricians. Or businesses that use autos to transfer people back and forth from one business location to another.

So what’s the deal with businesses that use their vehicles for business and personal use?

For them, it’s more complicated. “They must determine the amount of automobile usage that’s allocated solely for business,” shared Tom. There are essentially two methods for doing that:

  • The mileage method. With this method, business owners can deduct and reimburse the actual mileage for business travel to them and their employees. The amount is calculated the following way:
    • # of business miles   x   IRS standard mileage rate for business = amount that can be deducted
    • The standard rate, which is indexed for the cost of automobile inflation and subject to change each year, was at 62.5 cents at end of 2022. For 2023, it’s been increased to 65.5 cents as of January 2023.
    • To claim this deduction, the IRS requires you to calculate and have proof the business mileage. Tom has a solution for that. “Business owners should keep a contemporaneous (everyday) log of their business mileage.” They can log it manually or use technology solutions, such as MileIQ, which automatically detects start and end points for trips and calculates and tracks the business mileage.


  • Actual Business Use of the Car. Instead of taking a deduction based on mileage, businesses can opt for another method – the actual cost of operating the vehicle for business purposes.
    • “For this method, you must keep track of the total expense to run the car for the entire year, such as gasoline, repairs, maintenance, registration costs, and vehicle taxes,” explained Tom.  The caveat is that those costs alone assume the car is used 100% for business. So, if you use the car for personal reasons, as most business owners do, you’ll need to determine the percentage of your total costs for business. To determine that, you’ll need to know the mileage on your car for the beginning and end of the year and keep a contemporaneous log to help you identify business miles.
      • To calculate your business miles:
        • Total miles  –  personal miles = business miles
      • To calculate the percentage of business miles:
        • Business miles  / total miles x 100 = percentage of business usage
      • To calculate your deduction:
        • Percentage of business usage  x   total cost of operating vehicle = deduction

Ready, set, go track your miles

With both the mileage and actual cost methods, you’ll need to track your mileage. If you haven’t already created your log, now’s a great time to start.

Talk to your tax advisor

This is just a high-level view of how the business use of an automobile deduction works. To learn more and determine the method that’s right for your business, talk to your CPA or tax advisor. We just happen to know a good one. You can contact Tom Savino at (781) 449-3919.