IRS Raises Tax Deduction for Business Use of Vehicles by Nearly 4.5 Percent

The IRS in Washington, on Aug. 12, 2024. Madalina Vasiliu/The Epoch Times

The IRS is bumping up a travel tax deduction available for taxpayers following an increase in vehicle expenses this year.

If a vehicle is used for business, charity, or medical purposes, the costs are typically deducted on tax returns. The IRS periodically sets the amount that taxpayers can deduct per mile for such expenses, also called the standard mileage rate. Next year, the rate for vehicles driven for business purposes will increase by $0.03, or almost 4.5 percent, from $0.67 this year, said a Dec. 19 statement from the agency. As such, the rate for business use of a car, van, pickup, or panel truck is set at $0.70 per mile for 2025, the IRS said.

The new rate is more than 20 percent higher than the rate of $0.58 in 2019, prior to the pandemic. The updated figures “apply to fully electric and hybrid automobiles, as well as gasoline and diesel-powered vehicles,” said the agency.

The per-mile rate for medical use and charity remains at $0.21 and $0.14, respectively. Military members are allowed to deduct $0.21 per mile if they move locations “due to a military order and permanent change of station.”

Commenting on the latest IRS update, Motus, a workforce management company offering vehicle reimbursement solutions, said in a Dec. 19 statement that driving costs have changed this year, citing increasing prices of vehicles, auto insurance costs, and maintenance and repair expenses. Only fuel costs were lower year over year, it said.

“So many factors continue to impact driving costs in significant ways,” said Motus CEO Phong Nguyen.

“It’s essential for business leaders to support their employees who drive as a part of their job—and rely on their vehicles for work—by implementing fair and accurate reimbursement strategies while also optimizing reimbursement spend and mitigating waste and risk.”

Taxpayers have the option to reject the IRS’s standard mileage rate for calculating the costs of using the vehicle. Instead, they can calculate and deduct the actual expenses.

However, “taxpayers using the standard mileage rate for a vehicle they own and use for business must choose to use the rate in the first year the automobile is available for business use,” said the IRS.

“Then, in later years, they can choose to use the standard mileage rate or actual expenses.”

Claiming Deductions

If a taxpayer plans to calculate the actual expenses involved in running a vehicle, they must take into account costs like “gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments)” that are attributed to the business use of a vehicle, said the IRS.

“Other car expenses for parking fees and tolls attributable to business use are separately deductible, whether you use the standard mileage rate or actual expenses,” the agency said.

There are certain criteria to claim deductions using the standard mileage rate. For instance, the taxpayer must own or lease the vehicle for which the rate is being applied. Plus, they cannot operate five or more vehicles at a time.

In order to claim deductions for business travel, taxpayers should maintain adequate records, financial services company Ramp said in a September post on its website.

This includes documentation showing mileage traveled, dates on which the business travel was conducted, and the purpose of the trip.

Taxpayers must also record crucial information related to such travel, like the start and end point of a trip, the starting and ending reading of an odometer, and other travel expenses like toll receipts or parking fees.

The mileage logs will assist in times of IRS audits, said the company, adding that it was prudent to retain mileage records for as long as there is a possibility of an audit.