If you've been driving for business meetings, client visits, or site inspections this year, you could be sitting on one of the largest tax deductions available to small business owners.

Yet many S-Corp owners miss out — either by overcomplicating the strategy or not knowing how to structure it properly. The good news: It's not too late to fix it.

The One Big Beautiful Bill, signed in July 2025, permanently restored 100% bonus depreciation and increased Section 179 limits. These two powerful tools, when used correctly, can dramatically lower your 2025 tax bill.

Whether you've been diligent about tracking expenses or you're starting from scratch, the method you choose and the documentation you maintain over the next few weeks will directly shape how much you owe (or save) come April.

Two decisions matter most: which deduction method to use and who should own the vehicle.

Understanding Your Two Core Deduction Options

When it comes to deducting vehicle expenses, you have two primary methods: the standard mileage rate or the actual expense method. The choice between them depends on your specific situation, and making the wrong call can cost you thousands.

Standard Mileage Rate: The Straightforward Approach

The standard mileage rate is exactly what it sounds like: multiply your business miles by the IRS rate to calculate your deduction. For 2025, that rate is $0.70 per mile.

This method works well when:

• You drive significant business miles in a moderately priced vehicle
• Your vehicle is fuel-efficient with lower operating costs
• You want minimal paperwork and simple calculations
• You're comfortable with straightforward mileage tracking

The rate covers gas, maintenance, insurance, and depreciation in one calculation. You don't need to save every receipt or calculate percentages — just track your mileage.

The trade-off? Once you choose the standard mileage rate in the first year you use a vehicle for business, you're generally locked into that method for the life of that vehicle.

Actual Expense Method: The Detail-Oriented Approach

The actual expense method requires tracking every vehicle-related expense: gas, oil changes, repairs, insurance, registration fees, lease payments, and depreciation. You then deduct the business-use percentage of these total costs.

This method typically makes sense when:

• You drive a newer or more expensive vehicle
• Your operating costs are higher than average
• You're purchasing a vehicle where depreciation provides real value
• You're prepared to maintain detailed expense records

The setup requires more documentation, but for S-Corp owners with newer or more expensive vehicles, the additional deduction often makes the effort worthwhile. When paired with bonus depreciation or Section 179 expensing, the actual expense method can deliver significant tax benefits.

Recent Tax Law Changes That Affect Your Vehicle Deduction

The One Big Beautiful Bill, signed into law in July 2025, permanently restored 100% bonus depreciation for qualifying property acquired after January 19, 2025. For business vehicles, this changes the calculation significantly.

Key provisions include:

• 100% bonus depreciation for qualifying vehicles acquired after January 19, 2025
• Section 179 expensing limits increased to $2.5 million
• Phase-out threshold raised to $4 million for property placed in service after December 31, 2024
• Heavy vehicles (over 6,000 lbs) still capped at $31,300 for Section 179, but can utilize 100% bonus depreciation beyond that limit

For S-Corp owners considering a vehicle purchase, these changes create an opportunity to accelerate tax benefits. Qualifying vehicles can now be fully expensed in the year they're placed in service, rather than spreading the deduction over several years.

The rules around what qualifies and how to properly document business use remain strict. The tax benefit should support a legitimate business need, not drive the purchase decision.

>> Want to talk about your specific situation and how to maximize your deduction? Schedule a consultation today.

Bonus Depreciation vs. Section 179: What's the Difference?

Many S-Corp owners get confused about the difference between these two provisions. Both allow you to write off the cost of qualifying business assets quickly, including vehicles, but they work differently.

Section 179 is elective — you choose how much to expense, up to the $2.5 million limit with a $4 million phase-out threshold. For heavy SUVs over 6,000 pounds, there's a cap of $31,300. Section 179 is taken first and is limited to your taxable income — it cannot create a business loss.

Bonus Depreciation applies automatically to the remaining basis after Section 179. There's no cap on the overall amount for qualifying property, and it can be used to create or increase a net operating loss. For vehicles, this means you can deduct the full value beyond the Section 179 cap.

When combined strategically, these tools can allow you to deduct up to 100% of a qualifying vehicle's cost in the year it's placed in service.

S-Corp Owners: Vehicle Ownership Matters

One consideration that many S-Corp owners overlook: tax treatment changes depending on who owns the vehicle. This decision affects how you claim deductions and what documentation you need.

If the S-Corp Owns the Vehicle

• Expenses and depreciation are deducted directly by the business
• Any personal use creates a taxable fringe benefit that must be reported on your W-2
• You can leverage Section 179 and bonus depreciation for maximum first-year deductions
• Commuting from home doesn't count as business use (unless your home office is your principal place of business)

If You Own the Vehicle Personally

• The S-Corp reimburses you through an accountable plan using either standard mileage or actual expenses
• Keeps the vehicle off the company's books and avoids tracking personal use as a fringe benefit
• Requires a formal written plan and documentation with proper expense reports and reimbursements (not salary)
• You cannot claim Section 179 or bonus depreciation under this structure

Bottom line: Planning a vehicle purchase and want to maximize depreciation? Corporate ownership makes sense. Already own a vehicle and want simplicity? The accountable plan approach works well.

What to Do Before Year-End

There's still time to make strategic moves before December 31st:

1. Track Your Mileage

If you've skipped this step, start now. Use an app like Shoeboxed to log trips. At minimum, document:

• Date of each trip
• Destination and business purpose
• Miles driven

Apps automate this process and capture data in real-time, rather than requiring you to recreate trips from memory months later.

2. Make Necessary Repairs or Expenses

If you're using the actual expense method, any qualified maintenance paid before December 31st counts this year — assuming it's a legitimate, necessary expense. Schedule oil changes, tire replacements, or needed repairs now to accelerate deductions into 2025.

3. Consider Buying Before Year-End

Buy and place a qualifying vehicle in service before December 31st, and you can claim full-year depreciation, even if used for business for just one day. This applies whether the vehicle is fully paid or financed.

Thanks to bonus depreciation and Section 179, you could deduct up to 100% of the vehicle's cost — a powerful strategy when properly executed.

Just remember: while the IRS may let you write off a G-Wagon, they're a little less enthusiastic if it looks like you bought it just to flex on TikTok. The deduction only works if the purchase supports a real business need with legitimate business use.

Be sure the vehicle is:

• Used at least 50% for business
• Placed in service before year-end
• Documented appropriately in mileage logs or expense records

Combining this with financing often results in what's effectively tax-leveraged purchasing — full deduction now, while spreading the payments over time.

For S-Corp owners specifically: Decide before purchasing whether the corporation or you personally will own the vehicle. This decision affects the available deductions and documentation requirements. If you want to maximize depreciation deductions, corporate ownership is typically the better route.

Avoid These Common Mistakes

S-Corp owners consistently make the same mistakes with vehicle deductions. Most are easily avoidable:

• Claiming 100% business use without proof. The IRS doesn't often believe it, especially with your only vehicle. Be honest in your calculations. If your business use drops below 50% in future years, you may face depreciation recapture.
• Not reporting personal use of company vehicles as taxable income. If your S-Corp owns the vehicle and you use it for personal trips, that's a taxable fringe benefit. Failing to back out personal usage creates compliance problems.
• Choosing the wrong method in Year 1. If you go with the standard mileage rate, you can't switch later (in most cases). If you think the actual expense method might benefit you, start with that method to maintain flexibility.
• Missing documentation. Handwritten logs months after the fact don't hold up in an audit. The IRS expects contemporaneous records. If you claim deductions without supporting documentation, you'll repay taxes with penalties and interest.
• Buying a vehicle just for the tax write-off. Only make the purchase if it supports your actual business needs. A dollar saved on taxes doesn't justify spending three or four dollars you didn't need to spend.

Your End-of-Year Auto Deduction Checklist

Before December 31st, you should:

✅ Decide whether to use the actual expense or mileage method

✅ Track recent and current business mileage

✅ Gather receipts for gas, insurance, maintenance, and registrations

✅ Review your vehicle's ownership to determine who should deduct

✅ Schedule a call with your accountant or bookkeeper

✅ Consider placing a new vehicle in service before year-end if needed

Need Guidance? We Can Help

At Better Bookkeeping, we help S-Corp owners optimize vehicle deductions through proper entity structure, accountable plans, and strategic planning. We track every transaction that qualifies as an auto expense, so you don't miss deductions or scramble for documentation come tax time.

The difference between getting this right and getting it wrong can be thousands of dollars in tax savings — or thousands owed in an audit. Our team analyzes your specific situation to determine:

• Which deduction method saves you more money
• Whether corporate or personal ownership makes sense for your circumstances
• How to set up proper documentation that holds up under IRS scrutiny
• Strategic timing for vehicle purchases to maximize current-year deductions

Schedule a consultation today to review your current setup and make sure you're positioned to maximize deductions and stay audit-ready. The right moves now can reduce your tax bill and set up smarter deductions for years ahead.