Quick guide · 3 min read
Actual-expense method
With the actual-expense method you deduct the business share of what the vehicle really costs to own and run: depreciation or lease payments, fuel, insurance, repairs, tires, registration and loan interest.
It usually beats the standard mileage rate for expensive vehicles driven fewer miles, and needs more record-keeping.
- Who it fits
- Owners of expensive or costly-to-run vehicles used for business.
- Figures
- 2026 tax year
The key rule
Total vehicle costs multiplied by the business-use percentage from your mileage log.
4 steps
Track every cost
Use one card for vehicle costs or tag them in your bookkeeping: fuel, charging, insurance, maintenance, repairs, registration, parking at your office and lease or loan payments.
Log every business trip
The log sets the business-use percentage. Record total miles at the start and end of the year as well.
Depreciate owned vehicles
We calculate depreciation each year, including any Section 179 or bonus depreciation.
Compare with standard mileage in year one
We run both methods in the first year. Your first-year choice limits what you can do later.
Example
Comparing methods
You drive 8,000 business miles out of 12,000 total, so business use is 67%. Annual costs, including depreciation, are $18,000. Actual expense gives $12,000. At the standard mileage rate, 8,000 miles would give less, so actual expense wins here.
Common mistakes
- If you use actual expenses in the first year for an owned vehicle, you generally cannot switch to standard mileage for that vehicle later.
- Leased vehicles have an "inclusion amount" that reduces the deduction for expensive cars.
- Deducting 100% of costs for a car that is also used personally.
Key dates
- December 31
- Record your odometer reading for total miles.
Questions we hear
Are passenger cars limited?
Yes. Cars under 6,000 pounds have yearly depreciation caps. Heavy SUVs, trucks and vans can avoid them. See the Section 179 guide.
What about car washes and parking?
Business parking and tolls are deductible in full. Washes and other running costs count at the business-use percentage.
What to send us
- Mileage log
- Vehicle cost records
- Purchase or lease agreement
Upload them to your client portal.
General education for TaxSquad clients, not advice for your situation. Rules and figures change. Talk to us before acting on this guide.