The Internal Revenue Service (IRS) has announced that, starting January 1, 2025, the optional standard mileage rate for automobiles driven for business purposes will increase by 3 cents per mile. This rate change will impact business owners, employees, and other taxpayers who use their vehicles for business, charitable, and medical purposes. Below is everything you need to know about the 2025 mileage rate updates and how they affect your tax deductions.
New 2025 Mileage Rates
For 2025, the IRS has set the following standard mileage rates for different types of vehicle use:
Business use: 70 cents per mile (an increase of 3 cents from 2024)
Medical use: 21 cents per mile (no change from 2024)
Moving expenses for qualified active-duty military members: 21 cents per mile (no change from 2024)
Charitable use: 14 cents per mile (unchanged from 2024)
These rates apply to all types of vehicles, including gasoline, diesel, electric, and hybrid cars, vans, trucks, and panel trucks.
What You Need to Know About Business Use Deductions
The mileage rates for business use are set based on an annual study of the fixed and variable costs of operating a vehicle. If you're a business owner or use your car for business purposes, the increased rate of 70 cents per mile in 2025 can significantly boost your deductions.
You have the option to either use the IRS standard mileage rate or calculate your actual expenses for vehicle use, which may include fuel, repairs, insurance, and depreciation. However, if you opt for the standard mileage rate, it’s important to note that this is mandatory for the first year the vehicle is used for business purposes. In future years, you can choose to either continue using the standard mileage rate or switch to the actual expense method.
For leased vehicles, the standard mileage rate must be used throughout the entire lease period, including renewals.
What About Medical, Moving, and Charitable Use?
The standard mileage rate for medical and moving purposes is based on the variable costs of operating a vehicle, while the charitable mileage rate is set by statute. If you're using your vehicle for any of these purposes, it’s important to keep records and ensure you're using the appropriate rate for the year.
Medical Use: The 21 cents per mile rate applies to trips related to medical care, which may include traveling to doctor’s appointments or treatment centers.
Moving for Active-Duty Military Members: Qualified active-duty military members can deduct 21 cents per mile for moving expenses incurred during permanent change of station orders.
Charitable Use: The rate of 14 cents per mile applies to driving in service of charitable organizations, and this rate remains unchanged from 2024.
Tax Cuts and Jobs Act Impact
Under the Tax Cuts and Jobs Act, there were significant changes to deductions related to moving expenses and unreimbursed employee travel. Most taxpayers can no longer deduct unreimbursed business travel expenses. However, active-duty military members are still allowed to deduct moving expenses, provided the move is under official military orders.
Keep in Mind: Filing and Deduction Rules
Recordkeeping: If you plan to take advantage of these mileage deductions, keep detailed records of your trips. This includes tracking the date, miles driven, and purpose of each trip. Whether you're using the standard mileage rate or the actual expense method, accurate records are essential for claiming your deduction.
First Year Business Use: When you first use a vehicle for business, you must choose between the standard mileage rate or actual expenses. If you start with the standard mileage rate, you can switch to actual expenses in subsequent years.
Leased Vehicles: If your vehicle is leased, you must consistently use the standard mileage rate throughout the entire lease term.
Penalties for Non-Compliance
If you fail to keep proper records or make an improper deduction, the IRS can disallow your deduction and impose penalties or interest on any additional taxes due. To avoid these issues, ensure that you maintain accurate and complete records of your mileage for business, medical, moving, or charitable purposes.
In Summary
For 2025, business owners and individuals who drive for business or related purposes will benefit from the increase in the standard mileage rate to 70 cents per mile. If you use your vehicle for medical, moving, or charitable purposes, the rates will remain the same as 2024, but you’ll still need to ensure you’re following the appropriate guidelines for claiming these deductions.
For more information, be sure to consult with your tax advisor to determine the best method for your business and maximize your deductions. As always, keeping accurate and detailed records is essential to avoiding any issues come tax season.
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