The IRS recently announced an increase to the optional standard mileage rate used to calculate the deductible cost of operating an automobile for business. In 2024, the cents-per-mile rate for panel trucks, pickups, vans, and cars will rise from 65.5 cents to 67 cents.
The increase is meant to reflect, in part, changing gasoline prices. According to AAA, the national average price of a gallon of gas rose from $3.10 in December 2022 to $3.12 in December 2023.
Tracking expenses vs. standard rate
Generally, businesses can deduct actual expenses attributable to the business use of vehicles, such as:
- Vehicle registration fees
- Licenses
- Insurance
- Repairs
- Oil
- Tires
- Gas
You may also claim a depreciation allowance for the vehicle. (Of course, it’s worth noting that certain limits may apply.)
If maintaining detailed records of vehicle-related expenses feels tedious, the cents-per-mile rate may be a helpful alternative. However, you’ll need to keep track of certain information for each trip, including:
- Destination
- Rate
- Business trip
Businesses use the standard rate when reimbursing employees for the business use of their personal vehicles. This practice aids in attracting and retaining employees who utilize their personal vehicles for business purposes. The rationale behind this is that, according to existing laws, employees cannot deduct unreimbursed business expenses, including business mileage, from their individual income tax returns.
When employing the cents-per-mile rate, it's important to note that adherence to various rules is necessary. Failure to comply may result in reimbursements to employees being treated as taxable wages for them.
How the rate is calculated
The IRS commissions an annual study about fixed and variable costs of vehicular operation, including depreciation, repairs, maintenance, and gas. The business cents-per-mile rate is adjusted each year based on this study.
Occasionally, the IRS will change the rate midyear if gas prices fluctuate substantially.
Cases where the cents-per-mile rate is not allowed
The cents-per-mile method isn’t appropriate—or allowed—in every scenario.
- How you’ve claimed deductions for the same vehicle in the past
- Whether the vehicle is new to your business
- If you plan to take advantage of certain first-year depreciation tax breaks on it
Questions? Smolin can help.
Need assistance determining the best method to deduct business vehicle expenses? We’re here to help. Contact us to learn more about tracking and claiming these expenses on your 2023 tax returns and throughout 2024.