With nationwide gas prices higher than a year ago, it’s good news that the 2025 optional standard mileage rate for business vehicle use has increased too. The IRS recently announced that the cents-per-mile rate for operating a car, van, pickup, or panel truck will be 70 cents in 2025, up from 67 cents per mile in 2024. This rate applies to all types of vehicles, including gasoline, diesel-powered, electric, and hybrid-electric models.
The process of calculating rates
The 3-cent increase from the 2024 rate aligns with recent trends in gas prices. On January 17, 2025, the national average for regular gas was $3.11 per gallon, up from $3.08 last year, according to AAA Fuel Prices. But the standard mileage rate takes into account all vehicle-related costs, not just the price of gas.
The business cents-per-mile rate is actually updated annually based on an IRS study that examines the fixed and variable costs of operating a vehicle, including gas, maintenance, repairs, and depreciation. When gas prices significantly change, the IRS may adjust the rate midyear.
Standard rate or real expenses
Businesses can deduct the direct costs tied to using a vehicle for business such as gas, oil, tires, insurance, repairs, and registration fees. Vehicle depreciation can also be claimed, but certain limits apply to vehicle depreciation that don’t apply to other types of business assets.
The cents-per-mile rate is an excellent option if you prefer not to track every vehicle-related expense. With this method, instead of itemizing all actual expenses, you only need to log key details, like mileage, date, and destination for business trips.
Businesses that reimburse employees for using their personal vehicles for work often favor the cents-per-mile rate. This approach can help attract and retain employees who frequently drive for business since, under current law, employees can’t deduct unreimbursed business mileage on their own tax returns.
If you choose the cents-per-mile rate, just be sure to follow all the necessary rules. If you fail to do so, the reimbursements could be classified as taxable wages for your employees.
When you can’t use the standard rate
There are situations where the cents-per-mile rate doesn’t apply. It partly depends on how you’ve claimed deductions for the same vehicle in the past. But in other situations, it depends on whether the vehicle is new to your business this year or if you want to claim first-year depreciation tax benefits.With many factors in play, deciding whether to use the standard mileage rate for vehicle expenses can be tricky. If you have questions about claiming these expenses for 2025, or on your 2024 tax return, reach out to your Smolin advisor for help.