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The nationwide price of gas is slightly higher than it was a year ago and the 2025 optional standard mileage rate used to calculate the deductible cost of operating an automobile for business has also gone up. The IRS recently announced that the 2025 cents-per-mile rate for the business use of a car, van, pickup or panel truck is 70 cents. In 2024, the business cents-per-mile rate was 67 cents per mile. This rate applies to gasoline and diesel-powered vehicles as well as electric and hybrid-electric vehicles.
How to calculate standard business mileage rates for 2025
The 3-cent increase from the 2024 rate goes along with the recent price of gas. On January 17, 2025, the national average price of a gallon of regular gas was $3.11, compared with $3.08 a year earlier, according to AAA Fuel Prices. However, the standard mileage rate is calculated based on all the costs involved in driving a vehicle — not just the price of gas.
Every year, the business cents-per-mile rate is adjusted. It is based on a yearly study about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repair, and depreciation that is commissioned by the IRS. The IRS occasionally adjusts the cents-per-mile rate midyear if there is a significant change in the national average price of gasoline.
Standard Business Mileage Rate vs. Actual Expenses
In general, businesses are allowed to deduct the real costs associated with using vehicles for commercial purposes. Gas, oil, tires, insurance, repairs, licenses, and car registration payments all fall under this category. You can also request a depreciation allowance for the vehicle. Depreciation write-offs for vehicles, however, frequently have some restrictions that don’t apply to other kinds of business assets.
If you don’t want to keep track of actual vehicle-related expenses, the cents-per-mile rate is advantageous because you do not need to include all of your real expenses. However, you still must record certain information, such as the mileage for each business trip, the date and the destination.
Businesses that pay employees for using their personal vehicles for work purposes sometimes use the cents-per-mile rate. These payments may be able to draw in and keep workers who frequently use their personal vehicles for work-related functions. Why? Employee business expenditures, such as business mileage, are currently not allowed to be deducted on an individual’s income tax returns.
If you choose to use the cents-per-mile rate, keep in mind that there are a number of requirements. If you don’t comply, the reimbursements can be viewed by the recipients as taxable wages.
Standard Business Mileage Rate Can’t Always be Used
The cents per mile rate may not be applicable in some circumstances. It partially relies on how you’ve previously claimed deductions for the same vehicle in the past. In other cases, it depends on whether you want to take advantage of certain first-year depreciation tax breaks on the vehicle, or if the vehicle is new to your business this year.
As you can see, there are a lot of things to think about when considering whether to deduct vehicle expenses using the standard business mileage rate for 2025. If you have any questions about keeping track of and deducting such costs in 2025, or deducting 2024 costs on your 2024 income tax return, we can help.
Originally posted January 2020. Updated January 2025.