The national average price of gasoline has slightly increased compared to last year, leading to an adjustment in the optional standard mileage rate for 2025. The IRS recently announced that the business-use mileage rate for cars, vans, pickups, and panel trucks will be 70 cents per mile, up from 67 cents per mile in 2024. This rate applies to gasoline, diesel, electric, and hybrid-electric vehicles.
How the Rate Is Determined
The 3-cent increase aligns with recent fuel price trends. As of January 17, 2025, the national average price of a gallon of regular gasoline was $3.11, compared to $3.08 a year prior, according to AAA Fuel Prices. However, the standard mileage rate accounts for more than just fuel costs. It is based on an annual IRS-commissioned study that evaluates both fixed and variable vehicle expenses, including maintenance, repairs, depreciation, and fuel.
While the IRS typically adjusts the rate annually, it may issue a midyear change if there is a significant fluctuation in fuel prices.
Choosing Between the Standard Mileage Rate and Actual Expenses
Businesses have the option to deduct actual vehicle-related expenses, such as fuel, oil, maintenance, insurance, registration fees, and depreciation. However, certain depreciation limitations may apply to business vehicles.
The standard mileage rate is a convenient alternative, as it simplifies record-keeping by eliminating the need to track every individual expense. However, businesses using this method must still maintain mileage logs that include trip dates, destinations, and purposes.
Many businesses also use the cents-per-mile rate to reimburse employees who use personal vehicles for business purposes. These reimbursements can be a valuable benefit, as current tax laws prevent employees from deducting unreimbursed business mileage on their personal tax returns. However, businesses must ensure compliance with IRS regulations, as noncompliance could result in reimbursements being treated as taxable wages.
Limitations on Using the Standard Mileage Rate
Certain situations prohibit the use of the standard mileage rate. Eligibility may depend on how the vehicle has been previously deducted, whether it is new to the business, or if the business intends to claim first-year depreciation tax benefits.
Given the various factors involved, choosing the right method for deducting vehicle expenses requires careful consideration. If you have questions about tracking or claiming mileage expenses for 2025—or reporting 2024 expenses on your tax return—consult with our Tax Team for guidance.