The IRS gives contractors two ways to deduct vehicle costs. They produce different numbers, sometimes wildly different. Which one wins depends on your vehicle, your miles, and a decision you can’t undo without consequences.
The vehicle deduction is one of the biggest line items on a contractor’s tax return — often $8,000 to $20,000 a year. Getting it right matters.
Track every business mile, multiply by the IRS-set rate, deduct the result. For 2024 the rate was $0.67 per mile. The rate covers everything — fuel, oil, depreciation, insurance, maintenance, repairs, tires, license fees.
You can still separately deduct: parking fees and tolls (for business), interest on the vehicle loan (proportional), state and local personal property taxes (proportional).
To qualify for standard mileage in any given year, you must have used it in the first year the vehicle was placed in service. If you used actual the first year, you can’t switch to mileage later.
Add up everything you spent on the vehicle that year and deduct the business-use percentage. Includes: fuel, insurance, maintenance and repairs, tires, registration and license, lease payments (or depreciation if owned), garage rent.
The deductible portion is your total expenses multiplied by your business-use percentage. If you drove 20,000 miles total and 15,000 were business, your business-use percentage is 75%.
F-250 work truck example: 22,000 total miles, 18,000 business (82%). Actual expenses including $7,500 depreciation = $19,080. Business portion at 82% = $15,646. Mileage method: 18,000 × $0.67 = $12,060. Actual wins by $3,586.
Honda Civic example (separate vehicle): 18,000 total, 12,000 business (67%). Actual: $6,920. Business portion: $4,636. Mileage: 12,000 × $0.67 = $8,040. Mileage wins by $3,404.
The pattern: expensive-to-operate heavy vehicles favor actual. Cheap-to-operate vehicles with high mileage favor mileage.
Trucks and SUVs over 6,000 pounds gross vehicle weight rating qualify for accelerated depreciation under Section 179 and bonus depreciation. That alone often makes actual method dominant for work trucks in their first one or two years.
If you choose mileage first: You can switch to actual in a later year, but you have to use straight-line depreciation. You can’t take Section 179 or bonus depreciation.
If you choose actual first: You’re locked into actual for the life of the vehicle. You cannot switch to mileage.
For a contractor buying a new work truck wanting Section 179 or bonus depreciation, you must use actual from year one.
For mileage method: contemporaneous mileage log (kept at time of trip, not reconstructed). For each trip: date, destination, business purpose, miles driven. Apps that automate this: MileIQ, QuickBooks Self-Employed mileage tracker, Stride, Hurdlr.
For actual method: receipts for all vehicle expenses, mileage records to support business-use percentage, purchase documents.
If you have a heavy work truck used heavily for business, almost always use actual. If you have a passenger vehicle used moderately for business, almost always use mileage.
Foad is a federally licensed Enrolled Agent who writes about tax and bookkeeping for small businesses.