IRS Raises Business Mileage Rate for 2025
IRS Increases Standard Mileage Rate for Business Use in 2025
The Internal Revenue Service (IRS) announced an increase in the optional standard mileage rate for automobiles driven for business purposes in 2025. This key rate will rise by 3 cents to 70 cents per mile, effective January 1st.
Understanding the Standard Mileage Rate
The standard mileage rate is a crucial figure for individuals and businesses determining the deductible costs associated with operating vehicles for various purposes. These purposes include business activities, charitable donations, medical appointments, and relocation expenses for active-duty military personnel.
2025 Mileage Rates
- Business Use: 70 cents per mile (up from 67 cents in 2024)
- Medical Purposes: 21 cents per mile (unchanged from 2024)
- Moving Expenses (Active Duty Military): 21 cents per mile (unchanged from 2024)
- Charitable Organizations: 14 cents per mile (unchanged from 2024)
These rates apply uniformly to all vehicle types, including gasoline, diesel, electric, and hybrid models.
Rate Determination
The business mileage rate is established annually through a comprehensive study conducted by the IRS, analyzing both fixed and variable operating costs. Conversely, the rates for medical and moving purposes are calculated based solely on variable costs.
Important Questions
Can I use the standard mileage rate for both business and personal use?
Answer: No, the standard mileage rate can only be used for specific purposes, such as business, medical, or charitable activities.
How do I choose between the standard mileage rate and actual expenses?
Answer: The choice depends on factors like the frequency of vehicle use, record-keeping practices, and the potential tax advantages of each method.
When does the 2025 standard mileage rate become effective?
Answer: The increased rate of 70 cents per mile for business use becomes effective on January 1, 2025.
Tax Considerations
It’s important to note that the Tax Cuts and Jobs Act restricts the deductibility of unreimbursed employee travel expenses. Additionally, only active-duty military personnel can claim deductions for moving expenses incurred during a permanent change of station.
Using the Standard Mileage Rate
While the standard mileage rate offers a convenient method for calculating vehicle operating costs, it’s entirely optional. Taxpayers have the flexibility to choose between using the standard rate or tracking and deducting their actual expenses.
Key Considerations for Taxpayers
- Business Use: If a vehicle is used for business purposes in the first year of ownership, taxpayers must either utilize the standard mileage rate from the outset or opt for tracking actual expenses.
- Leased Vehicles: When using a leased vehicle, the standard mileage rate must be employed consistently throughout the entire lease term, including any renewal periods.
Notice 2025-5
This official IRS notice provides detailed information on the 2025 standard mileage rates, including guidance on:
- Fixed and Variable Rate (FAVR) plans: Maximum automobile costs for calculating mileage reimbursement allowances.
- Employer-provided automobiles: Maximum fair market value for calculating mileage allowances using cents-per-mile or fleet-average-valuation rules.
The IRS’s adjustment to the standard mileage rate for business use in 2025 provides valuable guidance for taxpayers seeking to accurately determine and deduct vehicle-related expenses. By carefully considering their individual circumstances and consulting with a qualified tax professional if needed, taxpayers can ensure compliance with IRS regulations and maximize potential tax benefits.
Disclaimer: This article provides general information and should not be considered professional financial or tax advice. Please consult with a qualified CPA or financial advisor for guidance specific to your individual business needs.
Questions?
Tax, Accounting, and Advisory Services
Matt’s background in federal, state, and local tax enables him to provide extensive services to the firm’s clients in the areas of tax compliance and consulting across a spectrum of industries.