Highlights:
- Standard Mileage Rates for 2025
- Business, Charitable, Medical, and Moving
- Considerations for 2025
- Switching between Actual Expense and Standard Mileage Rate Methods
- Employer reimbursements
- Employee deductions Suspended
- Special allowances for SUVs
As it does each year, the Internal Revenue Service has revealed the inflation-adjusted 2025 optional standard mileage rates used to compute the deductible expenditures of running a vehicle for business, charity, medical, or relocation reasons.
Starting January 1, 2025, the regular mileage rates for driving a vehicle (or a van, pickup, or panel truck) are:
- 70 cents per mile for business miles traveled (plus 33 cents per mile for depreciation). The rate has increased from 67 cents per mile in 2024.
- 21 cents for medical reasons and
- 14 cents for charity organizations
The business standard mileage rate is based on an annual analysis of the fixed and variable expenses of running a vehicle. The rate for medical and relocation expenses is calculated using the variable costs established by the same research. The tariff for utilizing a car to conduct services for a nonprofit organization is statutorily fixed (it can only be modified by Congressional action) and has been 14 cents per mile for more than 25 years.
When utilizing a personal car to provide services for a nonprofit organization, instead of using the 14 cents per mile approach, a taxpayer who itemizes their deductions may deduct directly connected out-of-pocket expenditures, such as petrol and oil. However, basic repair and maintenance charges, depreciation, registration fees, and tire or insurance costs are not deductible.
Important Considerations for Business Use of a Vehicle
Taxpayers may always calculate the real expenses of driving their vehicle for business purposes rather than utilizing standard mileage rates. In addition to unpredictable fuel costs, bonus depreciation and enhanced depreciation restrictions for passenger vehicles may make utilizing the actual expenditure approach desirable during the first year a vehicle is in commercial use. While the bonus depreciation rate was 100% from 2018 to 2022, it was 80% in 2023, 60% in 2024, and will be 40% for cars taken into service in 2025.
However, if you have already utilized the real method (using Sec. 179, bonus depreciation, and/or MACRS depreciation), you cannot use the normal mileage rates. This regulation is administered on a vehicle per vehicle basis. Furthermore, the business standard mileage charge cannot be used to any vehicle utilized for rental or more than four cars at the same time.
What many company owners who employ the normal mileage rate fail to realize is that parking and tolls, as well as state and local property taxes paid for the car and attributed to business usage, may be deducted on top of the usual mileage rate.
Employer Reimbursement
When employers reimburse employees for business-related car expenses using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee provides the employer with documentation of the time, place, mileage, and purpose of employment-related business travel.
Employee business expenditures were repealed as an itemized deduction by the Tax Cuts and Jobs Act, which was effective from 2018 to 2025. As a result, during these years, workers may not deduct unreimbursed employment-related usage of their cars, light trucks, or vans on their federal tax returns.
Self-employed taxpayers, on the other hand, may still deduct business-related car expenses. Regardless of whether the normal mileage rate or actual expenditure method is utilized, a self-employed person may deduct the business usage part of vehicle loan interest on Schedule C.
Faster write-offs for heavy sport utility vehicles (SUVs)
Many of today's SUVs weigh more than 6,000 pounds and are thus exempt from the luxury auto depreciation limit rules; taxpayers with these vehicles can use both the Section 179 expense deduction (up to $31,300 in 2025) and the bonus depreciation (the Section 179 deduction must be applied before the bonus depreciation) to generate a sizable first-year tax deduction. However, the vehicle's gross unloaded weight cannot exceed 14,000 pounds. Warning: Business automobiles have a 5-year class life. If the taxpayer later sells the car before the end of the 5-year term, as many do, a part of the Section 179 cost deduction will be recovered and put back to the taxpayer's income (SE income for self-employed persons). The potential consequences of deducting all or a considerable part of the vehicle's cost under Section 179 should be examined. If you have any concerns about the best ways to deduct the business usage of your car or the documents necessary, please contact our office.
