Car Payments as a Tax Write-off (2024)

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Can Your Car Payment Be a Tax Write-off?

For a lot of freelancers and gig workers, your car is your life. When you work as a delivery driver, you pretty much live in your car, and if you're an independent contractor, you probably spend a significant amount of time driving from one job site to another. So it's only natural to assume that your car payment can be considered a business expense and to think you can claim your car payment tax on taxes you paid on your annual tax return.

It's natural for freelancers who use their cars to expect to claim a car tax write-off on their 1099 tax. But if you bought a car and are making monthly payments, or you're leasing a car, the payments are not actually tax-deductible. But there are still car-related business expenses that you can write off and save significantly on your taxes. An estimated income tax calculator is a good tool that can help you with this and make quarterly tax payments on time. Key takeaways:

Your car loan payments may not be fully tax-deductible
There are car-related expenses that you can write off from your taxes
Including your car as a business expense opens the door to several other forms of tax deductions

Table of contents

Car loan interest...Read more

Standard Mileage method...Read more

How does the standard mileage method actually work?...Read more

Should you use the standard deduction method?...Read more

Let's get back to writing off that car loan interest...Read more

Who should use the actual expenses method?...Read more

Using FlyFin for the actual expense method...Read more

Car loan interest

The majority of freelancers who use a car for their business use their personal vehicle. If you drive for Uber, for example, and you financed the purchase of the car you use, the interest you pay on your car loan is a vehicle tax deduction. So, although your monthly payment may not be a write-off, the interest you pay in a given month is, as are many other Uber-related expenses. It works in the same way as other vehicle tax deductions, like gas, car repairs or any expense you would enter on Schedule C of your 1040 tax return. The IRS gives you two ways to deduct car loan interest: the standard mileage method and the actual expense method.

Standard Mileage method

This method rolls all your deductible car expenses into a mileage rate that the IRS sets each year. It's simpler than the actual expenses method, but generally you save less on taxes. With the Standard Mileage method, you don't itemize each vehicle-related expense on your tax return but simply write off the mileage rate amount for every mile you drive while working for Lyft. In 2022, you can write off $0.585 per mile during the first half of the year and $0.625 from July until the end of the year. In 2023, the IRS increased the rate to $0.655.

Tips for using the Standard Mileage method

If this is your chosen method for writing off car loan interest and every other car-related tax deduction, there are a few things you'll need to do, or the IRS won't allow you to take the deduction, and a few other things to be aware of. Mileage log You'll need to keep solid records of the miles you drive for work in the form of a mileage log. You can do this the old-school way by keeping a notebook and pen in your car and recording the mileage for each trip, or you can use one of the many apps on the market that automatically tracks your mileage through your phone's GPS. Trips not for work Remember that trips that aren't for work, like from dropping off a rideshare client to the restaurant where you're grabbing lunch, are not tax-deductible. Or if you're doing a job as an independent contractor, the miles you drive from your home to a job site are not deductible as they are considered to be "commuting miles". Track expenses There are still a handful of expenses that can be considered a car tax write-off, even if you take the Standard Mileage deduction. You'll need to track them because they're not included in the standard mileage rate. You can do this using spreadsheets and saving receipts, or you can use an app like FlyFin to let A.I. automatically track your expenses so you don't miss a single deduction. You can also write off car depreciation as a deduction over a period of years or in the first year you put it into use.

How does the standard mileage method actually work?

Say you recorded mileage for 1,300 trips while driving for Lyft in 2022, and 600 of the trips were before July 1, 700 after. You would apply the $0.585 per mile rate to the first 600 trips and the $0.625 rate to the next 700. On top of that, you spent $2,400 on parking, buying new license tabs for your car and getting car washes. These three amounts together would make up your entire standard mileage deduction, which you'd record on Schedule C of your tax return.

Should you use the standard deduction method?

If you do a ton of driving for work, as you would if you worked for Uber or for a delivery service like Doordash, the standard deduction might save you more on your tax bill, but in most cases, the actual expenses method will lower your taxable income even more because there are so many deductible expenses available in so many categories. This is especially true if you're a more typical freelance or self-employed person who works from a home office, for example. Find out more about which is best for you in our breakdown of the standard mileage method vs. actual expenses.

Let's get back to writing off that car loan interest

Write-offs like this are only possible with the actual expenses method, which allows you to deduct any car expense that's directly related to your self-employment work. This includes the interest from your car loan. Here's how that works. Most freelancers use the same vehicle for personal use and work use. The percentage you use for work is the one that will affect your taxes because you can apply it to all of your car expenses. It already seems complicated, right? But the formula is actually simple. If 60% of the time you use your car is spent driving for Uber, you can deduct 60% of your car loan interest or any other car tax write-off. That means car repairs, gas, oil changes, new wiper blades and even your cellphone bill, if you use it for rideshare driving, can all qualify as business expenses.

Who should use the actual expenses method?

It's clear that the actual expenses method generally saves more in self-employment taxes than the standard mileage rate with the exception of like rideshare drivers and truckers. To use this method, record-keeping becomes even more important because you need to know exactly what you spent on everything from that last interest payment to the last time you were at the pump. Fortunately, there are apps like Flyfin that use A.I. to track every business expense, including car expenses, automatically 24/7 to find every possible tax write-off.

Using FlyFin for the actual expense method

If you're working as a freelancer, whether you're receiving a 1099 from Uber or working from home as a graphic designer, FlyFin makes taxes for self-employed individuals effortless. From finding tax deductions year-round to offering round-the-clock tax expert support for any questions freelancers have, FlyFin takes 95% of the work out of freelancer taxes and provides 100%-accurate state and federal tax filing at tax time.

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Simplified home office deduction

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FlyFin caters to the tax needs of freelancers, gig workers, independent contractors and sole proprietors.But anyone can file taxes through FlyFin! FlyFin tracks all your business expenses automatically using A.I. technology. Then, our CPA team files a guaranteed 100% accurate tax return for you – to save you a couple thousand dollars and a ton of time on your taxes.In addition, you can download the FlyFin app and have your taxes filed in less than fifteen minutes, saving time and money.

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