Two ways to deduct a vehicle, and what each one covers
The standard mileage rate is a single per-mile figure the IRS sets each year to stand in for every cost of running a car: fuel, oil, tyres, repairs, maintenance, insurance, registration and depreciation. Multiply business miles by the rate and you are done. The rate for 2025 is 70 cents a mile under Notice 2025-05.
The actual expense method adds up what the vehicle really cost you for the year and deducts the business-use share, measured by miles. A car that cost $9,500 to run and was used 66.67 percent for business yields a $6,333 deduction.
Both methods allow business parking and tolls on top, and both allow the business share of state and local personal property tax on the vehicle. Neither allows parking at your own regular place of work, or any part of a commute between home and a regular workplace — that is personal mileage, full stop, and it is the single largest source of overstated mileage claims.
Two other rates exist for non-business driving. Medical travel and qualified moves under military orders are valued at a separate, lower rate, 21 cents for 2025. Charitable driving is fixed at 14 cents a mile by IRC §170(i) and has not moved since 1998, because it is set by statute rather than by the annual notice. Both are itemised deductions and do not touch a Schedule C.
The arithmetic, and the rules that constrain the choice
The standard method is one multiplication: business miles times the rate. The actual method is two: divide business miles by total miles to get the business use percentage, then multiply your total vehicle costs by it. Parking and tolls are added to whichever result you take.
The choice is not free in later years. If you want the option to use the standard rate for a vehicle at all, you must use it in the first year that vehicle is placed in service. Claim MACRS depreciation or a section 179 deduction on the car in year one and the standard rate is closed to that vehicle for its whole life. Start with the standard rate and you may switch to actual expenses later — though after switching you must use straight-line depreciation over the remaining life.
Leased vehicles are locked for the whole lease. If you use the standard rate on a leased car, you must use it for every year of that lease, including any renewal.
Some vehicles cannot use the standard rate at all. Five or more vehicles used simultaneously — a fleet — must use actual expenses. Vehicles for hire such as taxis have their own rules, and cars for which you have already claimed a special depreciation allowance are excluded.
The rate is not a reimbursement rate for employees. An employer may reimburse at the IRS rate under an accountable plan and the payment is tax-free to the employee, but an employee cannot deduct unreimbursed business mileage on a federal return — that deduction was suspended from 2018.
Worked example: 12,000 business miles of 18,000 total
A self-employed consultant drove 18,000 miles in the year, of which 12,000 were business trips to client sites logged with date, destination and purpose. Running the car cost $9,500 — fuel, insurance, servicing, tyres, registration and depreciation. Business parking and tolls came to $250.
- Standard mileage. 12,000 × $0.70 = $8,400.00.
- Plus parking and tolls. 8,400 + 250 = $8,650.00.
- Business use percentage. 12,000 ÷ 18,000 = 0.666667, or 66.6667 percent.
- Actual expense share. 9,500 × 0.666667 = $6,333.33.
- Plus the same parking and tolls. 6,333.33 + 250 = $6,583.33.
- Result. The standard method is larger by 8,650.00 − 6,583.33 = $2,066.67.
The break-even is easy to find and worth knowing. The two methods are equal when total vehicle costs equal the standard deduction divided by the business use percentage: 8,400 ÷ 0.666667 = $12,600 of annual running costs. Below that the standard rate wins; above it the actual method does. Raise the running cost to $20,000 — a newer, more expensive car with real depreciation — and the actual method gives 20,000 × 0.666667 + 250 = $13,583.33, beating the standard method by $4,933.33.
Because this deduction sits on Schedule C it reduces self-employment tax as well as income tax. The $2,066.67 advantage of the standard method is worth 2,066.67 × 0.1413 = $292.02 of self-employment tax plus, at a 22 percent marginal rate, (2,066.67 − 292.02 ÷ 2) × 0.22 = $422.54 of income tax — $714.56 in total.
How to read the result
High mileage in a cheap car favours the standard rate; low mileage in an expensive car favours actual expenses. The standard rate is a national average, so it over-rewards a paid-off economy car and under-rewards a new vehicle losing real depreciation. The table below sweeps the business use percentage at your own cost figures, so you can see where your break-even sits.
Decide in year one, because year one decides your options. Using the standard rate in the first year keeps both doors open for the life of the vehicle. Claiming accelerated depreciation in year one closes the standard-rate door permanently. If you are unsure which will be better over five years, the standard rate is the reversible choice.
The record-keeping burden differs sharply. The standard rate needs a contemporaneous log: date, mileage, destination and business purpose for each trip, plus start and end odometer readings for the year. The actual method needs all of that plus every receipt and a depreciation schedule, because you still have to prove the business use percentage.
A very high business use percentage attracts questions. Claiming 95 percent business use on the only car in a one-car household is a common audit trigger. Commuting is personal, and so is the trip to the shops on the way home. If you genuinely have a second personal vehicle, that fact is worth documenting.
Medical and charitable mileage rarely produces a benefit for most filers. Both are itemised deductions, so they only help if your Schedule A total beats the standard deduction, and medical costs must also clear the percentage-of-AGI floor first. Check that with the taxable income calculator before spending time on the log.
Standard mileage deduction by miles driven
| Miles | Business at $0.70 | Medical or moving at $0.21 | Charitable at $0.14 |
|---|---|---|---|
| 2,000 | $1,400.00 | $420.00 | $280.00 |
| 5,000 | $3,500.00 | $1,050.00 | $700.00 |
| 8,000 | $5,600.00 | $1,680.00 | $1,120.00 |
| 10,000 | $7,000.00 | $2,100.00 | $1,400.00 |
| 12,000 | $8,400.00 | $2,520.00 | $1,680.00 |
| 15,000 | $10,500.00 | $3,150.00 | $2,100.00 |
| 20,000 | $14,000.00 | $4,200.00 | $2,800.00 |
| 25,000 | $17,500.00 | $5,250.00 | $3,500.00 |
Business and medical rates change each year by IRS notice; the charitable rate is fixed by statute. Enter your own year's rate above — every figure here is simply miles multiplied by the rate.
Mistakes that inflate or lose the deduction
- Counting the commute. Travel between home and a regular workplace is never deductible. It does belong in total miles, which means including it lowers your business use percentage under the actual method.
- Double-deducting under the standard rate. Fuel, insurance, repairs and depreciation are already inside the rate. Deducting them again on top is the most common error in this area.
- Reconstructing a log at year end. The substantiation rules in IRC §274(d) require records made at or near the time of use. A spreadsheet built in April from calendar entries is weak evidence.
- Using the standard rate on a vehicle that already claimed accelerated depreciation. That election is irreversible for the life of the car.
- Forgetting that a home office changes what counts. If your home is your principal place of business, trips from home to a client are business miles rather than commuting — see the home office deduction calculator.
- Applying the business rate to charitable driving. Charity is 14 cents a mile by statute, a fifth of the business rate, and no notice will change it.
- Deducting mileage as an employee. Unreimbursed employee business expenses are not deductible federally. Ask for an accountable-plan reimbursement instead.
What the standard rate is built from
The IRS sets the business rate from an annual study of the fixed and variable costs of operating a car: depreciation, insurance, registration, fuel, maintenance and tyres. The medical and moving rate is built from the variable costs only, which is why it is roughly a third of the business rate — a medical trip does not justify recovering the ownership cost of the vehicle. The charitable rate is not a study result at all; it is fixed in IRC §170(i) and can only be changed by Congress, which is why it has stayed at 14 cents while the business rate has more than doubled.
Where this fits with the rest of the business return
The vehicle deduction lands on Schedule C, reducing net profit and therefore both income tax and self-employment tax. Run the resulting profit through the self-employment tax calculator, then resize your instalments with the quarterly estimated tax calculator — a $2,000 change in the deduction typically moves a quarterly payment by $150 or more.
The home office deduction interacts with this one directly. Qualifying a home office as your principal place of business converts what would have been non-deductible commuting into deductible business miles, which is frequently worth more than the home office deduction itself. The home office deduction calculator handles that side.
If you take the actual expense route, the depreciation component is its own calculation and is subject to the luxury auto limits under IRC §280F, which cap the annual write-off on a passenger vehicle regardless of its cost. The MACRS depreciation calculator and the vehicle depreciation calculator cover the mechanics.
For employers, the same rate has a second life as a reimbursement benchmark. Paying employees at or below the IRS business rate under an accountable plan makes the reimbursement tax-free to the employee and fully deductible to the business, with no reporting on the W-2. Paying above it makes the excess taxable wages, which is why the published rate is the de facto ceiling for corporate mileage policies.