What expense category is Vehicle Maintenance?

Keeping business vehicles safe and reliable requires regular maintenance and occasional repairs. Costs for oil changes, tire rotations, brake jobs, and fixing unexpected issues are common expenditures for businesses that rely on transportation. Accountants and SMB owners need to understand how to properly categorize these vehicle maintenance costs for accurate financial tracking and tax deductions.

The treatment of these costs depends significantly on whether you use the actual expense method or the standard mileage rate for deducting vehicle expenses, and whether the work performed is routine maintenance or a major improvement.

Vehicle Maintenance Expense Category

When using the Actual Expense Method for deducting vehicle costs, routine maintenance and repairs are treated as Operating Expenses. Common accounting categories include:

• Vehicle Maintenance Expense or Auto Maintenance Expense: Specific accounts for tracking these costs.
• Repairs and Maintenance Expense: A broader category, perhaps with a sub-account for vehicles.
• Auto Expenses / Vehicle Expenses: A general category that might encompass fuel, insurance, depreciation, and maintenance/repairs.

Important Note: If you use the Standard Mileage Rate to deduct vehicle expenses, you cannot separately deduct maintenance and repair costs. The standard mileage rate already includes an allowance for these expenses, along with depreciation, fuel, and insurance.

Major repairs that significantly add value or extend the life of the vehicle (like replacing an engine) are typically Capital Expenditures, added to the vehicle's cost basis and recovered through depreciation, not expensed immediately under maintenance.

Some Important Considerations While Classifying Vehicle Maintenance Expenses

Handling vehicle maintenance costs correctly requires attention to these key factors:

1. Actual Expenses vs. Standard Mileage Rate: This is the most critical factor. Maintenance and repair costs are only deductible if you use the Actual Expense Method. If you use the Standard Mileage Rate, these costs are not deducted separately.
2. Repairs vs. Improvements: Under the Actual Expense Method, distinguish between:
   
   • Repairs/Maintenance: Costs that keep the vehicle in normal operating condition (e.g., oil changes, brake pads, tire replacement). These are generally deductible operating expenses in the year incurred.
   • Improvements: Costs that substantially better the vehicle, restore it to like-new condition, or adapt it for a new use (e.g., engine overhaul, major bodywork, significant upgrades). These must be capitalized (added to the vehicle's basis) and recovered through depreciation.
3. Business Use Percentage: If a vehicle is used for both business and personal purposes, you can only deduct the business-use percentage of your actual maintenance and repair costs. This requires accurately tracking total mileage and business mileage for the year.
4. Ordinary and Necessary: The maintenance or repair expense must be ordinary (common and accepted) and necessary (helpful and appropriate) for keeping your business vehicle operational.
5. Recordkeeping: Maintain detailed records for all work performed when using the Actual Expense Method. Keep invoices and receipts from repair shops or parts suppliers that show the date, specific services performed or parts purchased, cost, and vehicle identification. Keep accurate mileage logs to substantiate the business use percentage.

Examples of Vehicle Maintenance Expenses

When using the Actual Expense Method:

Typically Expensed (Repairs/Maintenance)

• Oil changes and lubrication
• Tire rotations and replacements
• Brake pad and rotor replacements
• Windshield wiper replacements
• Fluid flushes (coolant, brake, transmission)
• Tune-ups and filter changes
• Replacing belts and hoses
• Repairing dents, scratches, or minor body damage
• Car washes related to business use

Typically Capitalized (Improvements)

• Complete engine or transmission replacement/overhaul
• Major body restoration
• Significant modifications or additions (e.g., installing specialized equipment)

Tax Implications of Vehicle Maintenance Expenses

• Deductibility:
  
  • Deductible only if using the Actual Expense Method.
  • Limited to the business-use percentage of the cost.
  • Routine maintenance and minor repairs are deducted currently.
  • Major improvements are capitalized and recovered via Depreciation (using MACRS, typically over 5 years for cars/light trucks) or potentially Section 179 expensing for the improvement itself if it qualifies.
• Timing of Deduction: Repair/maintenance expenses follow your accounting method (Cash or Accrual), deductible when paid or incurred. Depreciation follows specific IRS schedules.
• Where to Report (Schedule C): For sole proprietors using the Actual Expense Method, maintenance and repair costs are included as part of the total vehicle expenses reported on Line 9 ("Car and truck expenses"). Depreciation is calculated on Form 4562 and included in the total on Line 13 ("Depreciation...").

How Fyle Can Automate Expense Tracking

If you use the Actual Expense Method for your business vehicles, meticulous tracking of both costs and mileage is essential. Fyle offers features that significantly streamline this process:

• Accurate Mileage Tracking for Business Use Percentage: Determining the deductible portion of maintenance costs requires knowing your vehicle's business use percentage. Fyle provides robust, IRS-compliant mileage tracking:
  
  • It uses Google Maps to accurately calculate distances based on start, stop, and end points entered by the user.
  • It supports commute deductions (calculating distances once home/work locations are entered) and recurring mileage logs, simplifying tracking for regular trips.
  • Finance teams can set policies on mileage claims (like distance limits) to ensure compliance with IRS rules.
  • You can easily export IRS-compliant mileage logs needed to substantiate business usage.
• Capture Maintenance Invoices: Easily capture and store detailed invoices and receipts from auto shops or parts suppliers using Fyle's mobile app, email forwarding, or SMS. This is vital for documenting actual expenses.
• Consistent Categorization: Ensure maintenance and repair costs are consistently categorized under "Vehicle Maintenance," "Repairs," or your chosen account within Fyle.
• Centralized Vehicle Expense Management: Track various actual expenses (maintenance, repairs, fuel, etc.) related to specific business vehicles all in one place.
• Seamless Integration: Fyle syncs categorized vehicle maintenance expenses and mileage data directly to your integrated accounting software (QuickBooks, Xero, NetSuite, Sage Intacct), ensuring accurate records for calculating your total actual vehicle expense deduction.

By accurately tracking both mileage (for business use percentage) and actual maintenance costs, Fyle provides the necessary data and documentation to confidently deduct vehicle maintenance expenses when using the Actual Expense Method.