Yes, independent contractors can write off car expenses.
Who Qualifies as an Independent Contractor?
An independent contractor is a self-employed individual who provides services to a company or organization without being an employee. Independent contractors are not subject to the same tax withholding and payroll deductions as employees.
Car Expense Deductions for Independent Contractors
Independent contractors can deduct car expenses related to their business activities. These expenses can be deducted using either the standard mileage rate or the actual expenses method.
Standard Mileage Rate:
The standard mileage rate is a set amount per mile driven for business purposes. For 2023, the standard mileage rate is $0.655 per mile.
Actual Expenses Method:
The actual expenses method allows you to deduct the actual costs of operating your vehicle, such as:
- Gas
- Oil changes
- Repairs
- Insurance
- Depreciation
To use the actual expenses method, you must keep detailed records of your car expenses.
Calculating Your Business-Use Percentage
If you use your car for both personal and business purposes, you will need to calculate your business-use percentage. This percentage represents the portion of your car expenses that are deductible.
To calculate your business-use percentage, divide the number of miles driven for business by the total number of miles driven during the year.
Example
Let’s say you drive 12,000 miles during the year and 6,000 of those miles are for business purposes. Your business-use percentage would be 50%.
If you choose to use the standard mileage rate, you could deduct $3,930 (6,000 miles x $0.655 per mile).
If you choose to use the actual expenses method, you would need to keep track of all your car expenses and deduct 50% of those expenses.
Additional Deductions
In addition to car expenses, independent contractors can also deduct other business-related expenses, such as:
- Office supplies
- Equipment
- Travel expenses
- Health insurance premiums
Independent contractors can deduct car expenses related to their business activities. The standard mileage rate and the actual expenses method are two options for deducting car expenses. Independent contractors should keep detailed records of their car expenses and business-use percentage to maximize their tax deductions.
How to Write Off a Vehicle in 2024 (NEW Tax Code Changes)
FAQ
Can self-employed deduct car expenses?
Can I write off my car if I use it for work?
Can you write off car payments for LLC?
Can I deduct the purchase of a vehicle for my business?
Can I write off expenses as an independent contractor?
Along the same lines, there are expenses you can write off as an independent contractor. Doing so reduces your tax liability, thus allowing you to keep more money in your pocket. Of course, with the IRS watching closely, you must make sure that you only deduct qualified expenses.
Can I write off car expenses?
If your freelancing, 1099 contracting, or small business involves driving, then you can claim car-related tax write-offs. Owning a car isn’t cheap, so this move can provide a significant source of tax deductions. Let’s dive (drive?) in! Who can deduct car expenses? Which car-related expenses can I write off? Who can deduct car expenses?
Are independent contractors tax deductible?
As mentioned, independent contractors are responsible for paying self-employment tax, which sits at 15.3% of net earnings and contributes to Medicare and Social Security. Thankfully, the employer portion of this tax (50%) is tax-deductible, meaning that you’ll ultimately recoup 50% of this expense thanks to the self-employment tax deduction. 2.
Can I write off car insurance as a self-employment tax deduction?
Yes, you can write off car insurance on your vehicle as a self-employment tax deduction as long as it’s used to carry out your work (and is considered a usual and necessary expense by the IRS). This only applies if you’re using the actual expensing method—it isn’t deductible for those who take the standard mileage rate.