What expense category do rental cars come under?

Trying to figure out where rental car expenses fit in your business's budget? You're not alone. Knowing how to categorize rental car costs can make expense tracking and tax time a whole lot easier. Let’s look at how to classify car expenses, examples and tax implications.

Classifying rental car expenses

When it comes to categorizing rental car costs, there's a few options depending on how your business operates. Here's how you might classify these expenses:

• Travel expenses: If you're renting cars mainly for business trips or travel purposes, this is the most straightforward category. It keeps all your travel-related costs in one place.
• Vehicle expenses: If your business frequently rents cars for operations, you might classify them under vehicle expenses. This is helpful if you want to separate general travel from vehicle-specific costs.
• Other expenses: If you don't have specific categories for travel or vehicle expenses, you can include rental cars under other expenses. This catch-all category works for miscellaneous costs.

Examples of rental car expenses

You will have to pay some amount by renting a car under one of these instances:

• Business travel: Renting a car for attending conferences, client meetings, or site visits.
• Temporary vehicle replacement: Renting a car when a company vehicle is under repair.
• Project-specific needs: Renting specialized vehicles needed for a specific project or event.
• Employee relocation: Providing a rental car to an employee who is relocating temporarily.

For example, if your sales team rents a car for $500 for a week-long trip to meet clients, this expense would typically fall under travel expenses.

Tax implications of rental car expenses

Properly categorizing rental car expenses isn't just about organization—it affects your taxes too. Here's what to keep in mind:

• Deductible expenses: Rental car costs for business purposes are generally tax-deductible.
• Record keeping: Keep detailed records, including receipts and the business purpose of the rental, to substantiate deductions.
• Personal vs. business use: If a rental car is used for both personal and business purposes, only the business portion is deductible.
• IRS classification: The IRS typically considers rental car expenses as travel expenses, which can impact how you report them.

Let Ramp automate your expense process

Managing expense categories can be a hassle, but it doesn't have to be. Ramp streamlines the process by automatically categorizing, tracking, and managing expenses like rental cars. With Ramp, you save time, reduce errors, and gain clearer insights into your spending—all in one easy-to-use platform.