The Internal Revenue Service (IRS) has announced an increase in the optional standard mileage rate for business use starting January 1, 2025. This change provides taxpayers with updated rates to calculate deductible costs for vehicle use in business, charitable, medical, and certain moving purposes. While the rate for business use sees an adjustment, other rates remain unchanged from 2024.
2025 Standard Mileage Rates
Beginning January 1, 2025, the standard mileage rates for cars, vans, pickups, and panel trucks are as follows:
- 70 cents per mile for business use, up from 67 cents in 2024.
- 21 cents per mile for medical purposes, unchanged from 2024.
- 21 cents per mile for moving purposes (limited to active-duty Armed Forces members), unchanged from 2024.
- 14 cents per mile for charitable purposes, fixed by statute and unchanged from 2024.
The rates apply to all types of vehicles, including fully-electric, hybrid, gasoline, and diesel-powered models.
How the IRS Determines Mileage Rates
Mileage rates for business, medical, and moving purposes are based on an annual study analyzing the costs associated with vehicle use. This study considers:
- Business Use: A combination of fixed and variable costs, including depreciation, maintenance, repairs, gas, and insurance.
- Medical and Moving Purposes: Variable costs only, such as fuel and maintenance.
- Charitable Purposes: Set by statute and not adjusted annually.
Important Rules for Using the Standard Mileage Rate
Optional Use of Mileage Rates
The standard mileage rate is optional. Taxpayers can choose to calculate the actual costs of vehicle use instead. This includes tracking expenses such as fuel, insurance, repairs, and depreciation.
Initial Election Requirement
Taxpayers who own vehicles and wish to use the standard mileage rate must elect this method in the first year the vehicle is used for business purposes. For subsequent years, they can alternate between the standard mileage rate and actual expense methods.
Leased Vehicles
For leased vehicles, taxpayers must stick with the standard mileage rate method for the entire lease period, including any renewals.
Tax Cuts and Jobs Act Implications
The Tax Cuts and Jobs Act (TCJA) significantly altered deductions for certain travel expenses:
- Unreimbursed Employee Travel Expenses: These cannot be deducted as miscellaneous itemized deductions.
- Moving Expenses: Only active-duty Armed Forces members relocating due to a permanent change of station may claim moving expenses.
Additional Updates in IRS Notice 2025-5
IRS Notice 2025-5 provides further details, including:
- Maximum Automobile Cost: Used to calculate mileage reimbursement under a fixed-and-variable-rate (FAVR) plan.
- Fair Market Value for Employer-Provided Automobiles: The maximum value of vehicles first made available to employees for personal use in 2025, allowing employers to calculate mileage allowances using either the cents-per-mile valuation rule or the fleet-average valuation rule.
What This Means for Taxpayers
Taxpayers who use their vehicles for business purposes should familiarize themselves with the updated mileage rates. Choosing between the standard mileage rate and the actual cost method requires careful consideration of your vehicle’s usage patterns and expenses. Accurate recordkeeping is essential, regardless of the chosen method.
For employees and employers, understanding the new rates and related rules is crucial for ensuring compliance with IRS guidelines. Taxpayers planning to claim deductions for vehicle use or reimbursements should consult with a tax professional to determine the most advantageous approach.
Take Action Now
With the updated mileage rates effective January 1, 2025, taxpayers should:
- Review their current mileage tracking methods to ensure accuracy.
- Decide whether to use the standard mileage rate or actual expense method for the upcoming tax year.
- Consult IRS Notice 2025-5 for detailed guidance on fixed-and-variable-rate plans and employer-provided vehicles.
For expert guidance on maximizing your deductions and staying compliant with IRS rules, contact Gulla CPA today. Our team can help you navigate the complexities of vehicle-related tax deductions and reimbursement plans for the 2025 tax year.