Why a Year-End Vehicle Tax Checklist Matters
Every January, business owners realize they left money on the table. A vehicle they could have deducted. A mileage log they forgot to maintain. An accountable plan they never set up. The IRS does not give extensions on most vehicle deduction deadlines, so if you miss December 31, you wait another full year.
This checklist covers everything you need to review, file, or finalize before the calendar flips. Whether you already own a business vehicle or you are considering buying or leasing one before year-end, these steps will help you capture every dollar the tax code allows.
Step 1: Confirm Your Business Use Percentage
Before you claim any vehicle deduction, you need to know your business use percentage. The IRS requires documentation showing what portion of your driving is for business versus personal use.
Pull your mileage log for the year and calculate total business miles divided by total miles driven. If you have been tracking with an app like MileIQ or Everlance, export the report now. If you have not been tracking, reconstruct what you can using calendar entries, client meeting records, and GPS history.
The business use percentage determines how much of your vehicle expenses you can deduct. A vehicle used 80% for business means you can deduct 80% of qualifying costs. Drop below 50% and you lose access to Section 179 entirely.
Action Items
- Export or compile your mileage log for January 1 through December 31
- Calculate total miles, business miles, and business use percentage
- If below 50%, evaluate whether you can increase business use before year-end
- Store your mileage documentation with your tax records
Step 2: Review Section 179 and Bonus Depreciation Eligibility
Section 179 lets you deduct the full purchase price of a qualifying business vehicle in the year you place it in service, rather than spreading it over multiple years. For 2026, the deduction limit is expected to remain above $1 million for total equipment purchases, with SUVs over 6,000 pounds GVWR qualifying for up to $30,500 in Section 179 deductions.
Bonus depreciation is the other major accelerated deduction. In 2026, the bonus depreciation rate continues its phase-down from 100% in 2022. Check the current rate with your accountant, as it affects how much you can write off in year one.
The critical rule: the vehicle must be placed in service before December 31. That means purchased, titled, and actively used in your business. Signing a contract on December 28 but not taking delivery until January 3 means you wait until next year's return.
Action Items
- Confirm whether your vehicle qualifies for Section 179 (check GVWR for the 6,000-pound threshold)
- Verify the current bonus depreciation rate for 2026
- If purchasing a new vehicle, ensure delivery and first business use happen before December 31
- Discuss with your accountant whether Section 179 or bonus depreciation is more advantageous for your situation
Step 3: Decide Between Actual Expenses and the Standard Mileage Rate
You have two methods for deducting vehicle expenses: actual expenses or the standard mileage rate. You cannot use both for the same vehicle in the same year.
The standard mileage rate for 2026 is set by the IRS each December for the following year. For many business owners, especially those with newer or more expensive vehicles, the actual expense method produces a larger deduction because it includes depreciation, insurance, fuel, maintenance, registration, and loan interest (or lease payments).
However, if you chose the standard mileage rate in the first year you used the vehicle for business, you can switch to actual expenses later. If you started with actual expenses, you are locked in for that vehicle.
Action Items
- Calculate your deduction under both methods
- Compare the results and choose the method that produces the larger deduction
- If this is a new vehicle's first year, choose carefully since it may lock you into one method
- Document all actual expenses if using that method (receipts, invoices, statements)
Step 4: Set Up or Review Your Accountable Plan
If you drive a personal vehicle for business and want to reimburse yourself tax-free, you need an accountable plan. This is especially important for S-corp owners and LLC members who need a formal reimbursement structure.
An accountable plan requires three things: a business connection for each expense, adequate documentation (mileage logs, receipts), and return of any excess reimbursement. Without a written plan, reimbursements get treated as taxable income.
Action Items
- If you do not have a written accountable plan, create one before December 31
- Process any outstanding reimbursements for the current year
- Ensure your mileage log supports every reimbursement amount
- File the plan document with your corporate records
Step 5: Check Your Entity Structure
How your business is structured affects which vehicle deductions you can take and how you take them. Sole proprietors and single-member LLCs report vehicle deductions on Schedule C. S-corps and partnerships have different rules, especially around who owns the vehicle and how expenses flow through.
If you are considering purchasing a vehicle through your LLC, the entity needs to be the buyer, the title holder, and the insurance policyholder. Mixing personal and business ownership creates audit risk.
Action Items
- Confirm whether the vehicle is titled to you personally or to the business entity
- Verify your insurance policy matches the ownership structure
- If leasing through the business, ensure the lease agreement is in the business name
- Discuss with your accountant whether your current structure maximizes available deductions
Step 6: Review Lease Payment Deductions
If you lease a business vehicle, your deductible amount is the business use percentage of your lease payments, minus any lease inclusion amount required by the IRS. The lease inclusion tables are updated periodically and apply to vehicles above a certain fair market value.
Make sure all 12 monthly payments for the year are documented. If you started or ended a lease mid-year, prorate accordingly. And remember, the full lease payment is deductible as a business expense (adjusted for personal use), which is one reason leasing can be more tax-efficient than buying for some business owners.
Action Items
- Gather all 12 monthly lease payment records
- Check the IRS lease inclusion tables for your vehicle's fair market value
- Calculate the deductible portion based on business use percentage
- If you ended or started a lease mid-year, prorate the deduction
Step 7: Consider a Year-End Vehicle Purchase
If you have been thinking about a new business vehicle, the weeks before December 31 are strategically valuable. Dealers are clearing inventory, manufacturers are pushing incentives, and you lock in this year's depreciation deductions.
But do not rush into a purchase just for the tax benefit. The deduction should be a bonus on a vehicle you actually need, not the sole reason for buying. A $60,000 SUV with a $30,000 deduction still costs you $30,000 out of pocket (more after factoring in the tax bracket savings).
If you do decide to move forward, Vantage can help you find the right vehicle at dealer cost, handle negotiations, and ensure delivery before the deadline. Get your free quote in 5 minutes and we will show you exactly what a qualifying vehicle costs with your tax savings factored in. No spam. No pressure. Unsubscribe anytime.
Action Items
- Determine if a vehicle purchase makes business sense independent of the tax deduction
- Identify qualifying vehicles (especially those over 6,000 pounds GVWR for maximum Section 179)
- Allow at least 2 weeks for sourcing, delivery, and registration before December 31
- Get pre-approved for financing if needed
Step 8: Organize Your Documentation
Even the best deductions fall apart without documentation. The IRS can disallow vehicle deductions entirely if you cannot produce records during an audit. Year-end is the perfect time to organize everything in one place.
Your Year-End Vehicle Tax File Should Include
- Complete mileage log with dates, destinations, business purpose, and miles
- Vehicle purchase or lease agreement
- Title and registration showing ownership
- Insurance declarations page
- All maintenance and repair receipts
- Fuel receipts or credit card statements showing fuel purchases
- Accountable plan document (if applicable)
- Section 179 election form (Form 4562)
What is the Catch?
There is no catch to being organized, but there are real limits to what you can deduct. The IRS has specific rules about business use percentage, vehicle weight, and documentation requirements. Aggressive deductions without proper support can trigger audits and penalties. This checklist helps you stay within the rules while capturing everything you are entitled to. Vantage charges a transparent broker fee to help you find and negotiate a vehicle purchase, but the tax planning itself should always involve your accountant.
The Bottom Line
A few hours of year-end review can save you thousands at tax time. Work through this checklist step by step, involve your accountant on the technical decisions, and if you need a qualifying vehicle before December 31, start the process early enough to ensure delivery. The tax code rewards business owners who plan ahead.
