The IRS has announced an increase in the standard business mileage rate for 2025. Starting January 1, 2025, the rate for business travel became 70 cents per mile, up from the previous rate of 67 cents per mile in 2024.
There are two ways taxpayers can deduct expenses for the business use of a motor vehicle. Under the Actual Expense Method, taxpayers can deduct certain motor vehicle expenses related to your business use of the vehicle. This includes costs like gas, oil, tires, insurance, repairs, licenses, and registration fees. Additionally, you can claim a depreciation allowance for the vehicle based on the percentage of its business use.
Standard Cents-Per-Mile Rate
If you prefer not to track each vehicle-related expense throughout the year, you have the option of choosing the standard cents-per-mile rate to calculate a deduction. The standard mileage rate can be used to calculate deductible costs for companies operating an automobile for business use. Employers often use the standard mileage rate to pay tax-free reimbursements to employees who use their own vehicles for business.
To use this method, you’ll need to record the mileage for each business trip, your travel dates, and the business purpose of the travel.
The mileage rates apply to fully electric and hybrid vehicles as well as gasoline and diesel-powered vehicles.
Special Rules and Considerations
Certain rules may restrict your ability to use the standard cents-per-mile rate or the actual expense method. For example, if you lease a vehicle and choose the standard mileage rate for the first year, you must continue using that method for the entire lease period (including renewals).
Medical and Moving Driving
You can also use the standard mileage rate for medical reasons if you deduct medical expenses on your tax return. Starting January 1, the rate for deductible medical expenses remained 21 cents per mile, the same rate as 2024.
For active-duty military members making a permanent station change, the moving expense motor vehicle rate is 21 cents per mile, up from 18 cents per mile.
The rate for charitable motor vehicle usage, which is not indexed to inflation and is set by Congress annually, remained unchanged at 14 cents per mile for 2025.
Choosing The Right Method
If you want to use the standard mileage rate method in any tax year, you must do so in the first year you use your car for business. In later years, you can choose to switch back and forth between the methods from year to year.
In some years, you may find that the actual expense method is more beneficial than the standard mileage rates, even with the rate increases. In other years, such as one you drive a significant amount of miles, the mileage method might produce a larger tax deduction.
Contact us to discuss your specific situation and determine the best option for your business motor vehicle expenses.
