Towing Business Tax Deductions: Trucks, Equipment, and Operating Costs

By Yarik Yarosh, CPA ·September 5, 2026 ·4 min read

Written by Yarik Yarosh, CPA (US & Canada) September 5, 2026 · FL CPA license AC61704 · CPA Ontario

Towing businesses are among the most capital-intensive small businesses per employee. A single tow truck costs $40,000 (used wheel-lift) to $150,000+ (new heavy-duty wrecker with integrated wheel-lift). The truck is the business, and the depreciation strategy on the truck purchase drives the entire tax picture for the first several years.

✓Key takeaway

Major towing business deductions:

Tow trucks (Section 179 or MACRS):

Wheel-lift trucks (light/medium duty): $40,000-$80,000 used, $60,000-$120,000 new
Flatbed/rollback carriers: $50,000-$100,000 used, $80,000-$150,000 new
Heavy-duty wreckers (integrated boom + wheel-lift): $80,000-$200,000
All tow trucks exceed 6,000 lbs GVWR: full Section 179 in the purchase year
Aftermarket equipment (light bars, dollies, go-jacks, snatch blocks): deductible as equipment or vehicle accessories

Fuel (largest recurring expense):

A tow truck averages 6-10 MPG
At 200 miles/day, 300 days/year, at $3.50/gallon and 8 MPG: $26,250/year per truck
Fuel is fully deductible as a business expense
Track fuel purchases by vehicle for accurate per-truck cost analysis

Insurance (critical and expensive):

Garagekeepers insurance (covers customer vehicles in your lot): $2,000-$8,000/year
On-hook/in-tow insurance (covers customer vehicles while being towed): $2,000-$6,000/year
Commercial auto (per truck): $3,000-$8,000/year
General liability: $2,000-$5,000/year
Garage liability (if performing any repair work): $1,000-$3,000/year
Workers’ comp (if employees): 8-15% of payroll
Total insurance can exceed $15,000-$30,000/year for a 2-truck operation

Tow lot costs:

Lot rent or mortgage: $1,000-$5,000/month depending on location and size
Fencing, lighting, security cameras: deductible as improvements or equipment
Gravel, paving, drainage: land improvements (15-year MACRS)
Signage: deductible

Dispatch and technology:

Dispatch service or answering service (for 24/7 operations): $200-$500/month
GPS fleet tracking: $20-$40/truck/month
Dispatch/invoicing software (TowBook, Beacon): $50-$200/month
Two-way radios, scanners: deductible as equipment
Dash cameras: deductible

Motor club and police rotation fees:

Motor club membership fees (AAA service provider): deductible
Police rotation program fees (some jurisdictions charge an application or annual fee): deductible
Background check costs for drivers: deductible

Other:

Uniforms and safety vests: deductible
DOT compliance (drug testing, physicals, CDL requirements for heavy trucks): deductible
Tow straps, chains, dollies, wheel nets: deductible as supplies
Marketing (Google Ads, directory listings): deductible

What does a 2-truck towing operation’s tax picture look?

Hypothetical example

Round numbers. A towing S-Corp in Year 2 (no new truck purchase). Revenue: $280,000. Owner drives one truck, one employee drives the second.

Revenue breakdown:

Police rotation: $90,000
Motor club (AAA): $70,000
Private tows and roadside: $80,000
Storage fees: $30,000
Auction/scrap: $10,000
Total: $280,000

Expenses:

Employee driver wages: $48,000
Owner salary + employer FICA: $55,000 + $4,208 = $59,208
Workers’ comp (10% of total payroll): $10,300
Fuel (2 trucks): $48,000
Insurance (all types): $24,000
Truck depreciation (Year 2 MACRS on 2 trucks, $180,000 original cost): $57,600 (32% second-year rate)
Lot rent: $18,000
Dispatch service: $3,600
GPS, software, communications: $2,400
Marketing: $3,000
Supplies (straps, chains, dollies): $2,000
DOT compliance: $1,500
Office, phone, misc: $3,000
Total expenses: $280,608

K-1 to owner: ($608) LOSS

The owner earned $55,000 in salary (taxable as W-2 income) but the S-Corp breaks even or generates a small loss. This is because the MACRS depreciation on two trucks ($57,600 in Year 2) consumes the operating profit.

Year 3+ (as depreciation declines):

Year 3 MACRS: $180,000 x 19.2% = $34,560
Revenue growth to $300,000, expenses ex-depreciation stable: K-1 approximately $25,000
Year 4 MACRS: $180,000 x 11.52% = $20,736, K-1 approximately $39,000
Year 5 MACRS: $180,000 x 11.52% = $20,736, K-1 approximately $39,000
Year 6 MACRS: $180,000 x 5.76% = $10,368, K-1 approximately $50,000

Cash flow note: The owner received $55,000 in W-2 salary all year. The K-1 loss doesn’t reduce the salary. The owner took additional distributions of $20,000-$30,000 (distributions aren’t taxable income because the K-1 was a loss; they reduce basis). The owner’s total cash received: $75,000-$85,000, while paying tax on only $55,000.

This is the benefit of MACRS depreciation in a capital-intensive business: the accounting loss (driven by depreciation) shelters cash distributions from tax. The cash flow to the owner exceeds the taxable income for the first 3-4 years after a truck purchase.

Illustrative numbers only, not a real client and not advice for your facts.

Related guides:

Towing Business Entity Structure: LLC, S-Corp, or Sole Proprietorship

Want this checked against your own situation?

Start with a Diagnostic: a CPA licensed in the US and Canada reads your file and tells you in writing what's wrong and how to fix it, three to four business days after you finish the questions. The report is $250. If you hire us for any work after that, you get the $250 back as a discount on that work. Or send us your return or your letter and get a fixed price, free.

Start a Diagnostic →See prices

Get a fixed price, free

Get the next cross-border guide by email

One or two plain-English guides a week on US-Canada tax. No spam, unsubscribe anytime.

Cite this page

Yarik Yarosh, CPA. "Towing Business Tax Deductions: Trucks, Equipment, and Operating Costs." Blue Cloud CPA, September 5, 2026. https://bluecloudcpa.com/guides/towing-deductions-equipment

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.