Today, let’s look at the differences between Standard Mileage Rate and Actual Expenses and what are the tax implications in more detail.  We will explore some common questions.

Let's look at the Standard Mileage Rate 

This is the Most Common for Small Business Owners

• For 2025, the IRS has set the standard mileage rate for business use at 70 cents per mile. This rate includes the costs of operating and maintaining the vehicle, such as fuel, oil, insurance, and repairs.
• Other deductions you can take are parking fees, tolls and you can take the business portion of your car loan interest.

Is there a time factor? 

Yes, The standard mileage rate must be used in the first year the vehicle is placed in service if the taxpayer wishes to use it in subsequent years.

Are there any contraindications?

Yes, It cannot be used for vehicles used as part of a fleet (five or more vehicles) or if the taxpayer has claimed depreciation under the actual expense method in prior years.

What if I lease my car? 

A leased car is only eligible for mileage.

Do I need to keep written records?

Tax implications dictate that you must keep Accurate written mileage records per the IRS guidelines.  It is important to note that commuting expenses—traveling between home and the regular place of business—are not deductible. However, travel between multiple business locations or to temporary work sites may qualify for deductions

 

Let's Explore the Actual Expense Method

This method allows taxpayers to deduct the actual costs of operating the vehicle, including:

• Depreciation (There are annual limits on certain vehicles)
• Lease payments
• Fuel and oil
• Insurance
• Repairs and maintenance
• Registration fees

If the vehicle is used for both business and personal purposes, only the business-use percentage of the expenses is deductible.  So, you still must keep mileage to calculate the percentage that is deductible and prove the business portion.

Does a decision need to be made at the onset?

Yes, If you start out using this method, you cannot switch to mileage you are locked into actual expenses for your car. However, if you start out as mileage you can switch but there are specific guidelines regarding depreciation that may prohibit that.

Is there any other downside to using Actual expenses?

Yes , common tax implication of the mileage vs actual expense that is overlooked raises it's ugly head when selling your vehicle or a trading for a newer model you must pay taxes on the sale called depreciation recapture.   The taxable gain is equal to the difference between your selling price, and the vehicles adjusted basis.  (Original cost minus the accumulated depreciation.)  If you have depreciated the full vehicle your basis is “0”.  Your gain is the total of the sale.

What about a trade? 

Prior to 2018 you could use a trade as a Section 1031 exchange but in 2018 that all changed currently a trade is treated like a sale.

What do we advise?

When it comes to advising regarding the standard mileage rate vs the Actual Expense Method Most of our business owners are advised to use mileage you can use that and there is no depreciation recapture to worry about it.  The IRS is very generous in their deductible rate.

Give us a call at TruStep Advisors if you need to determine the best choice for you?