If you use your vehicle for business in Arizona, you can deduct the related expenses and lower your taxable income. Here’s a clear guide to the two main methods and what you need to know for 2026.
Two Ways to Deduct Vehicle Expenses
1. Standard Mileage Rate
This is the simplest method. You multiply your business miles by the IRS standard mileage rate.
- The IRS sets the rate annually (and sometimes adjusts it mid-year).
- For 2026 the rate started at 72.5 cents per mile and was later increased to 76 cents per mile for the second half of the year.
- You must keep a reliable mileage log showing date, destination, purpose, and miles driven.
2. Actual Expense Method
You deduct the actual costs of operating the vehicle for business use. This includes:
- Gas and oil
- Repairs and maintenance
- Insurance
- Registration and license fees
- Depreciation (or lease payments)
You then multiply the total expenses by your business-use percentage.
Which Method Should You Choose?
- Standard mileage is usually easier and requires less recordkeeping.
- Actual expenses can produce a larger deduction if you have high operating costs or a more expensive vehicle.
- Once you use the standard mileage rate for a vehicle you own, you generally must continue using it (with some exceptions).
Important Recordkeeping Rules
- Keep a contemporaneous mileage log (apps are fine if they record the required details).
- Separate business and personal use clearly.
- Save receipts if you use the actual expense method.
- Document the business purpose of each trip.
Arizona-Specific Notes
Arizona generally follows federal rules for vehicle expense deductions on your state return. Proper documentation is just as important for Arizona Department of Revenue purposes as it is for the IRS.
Need Help Maximizing Your Vehicle Deduction?
Vault Financials helps Arizona small business owners, real estate professionals, and self-employed individuals choose the right method and maintain the records needed to support the deduction.
Contact us today for assistance.
Disclaimer: This article is for educational purposes only. Mileage rates and tax rules can change. Consult a qualified tax professional for advice specific to your situation.