The standard mileage rate generally results in higher deductions, but the actual method might be better if you drive very few miles. If you go with the standard mileage rate in the first year, you can switch between the two methods later on; however, if you select the actual method the first year, you’ll be locked into that for the rest of your vehicle’s life—save for if you used straight-line depreciation.
Actual Expense | ||
|---|---|---|
Primary Advantage | For those who drive a lot of miles and own older vehicles, this method makes it easy to figure out how much of their car-related business costs they can deduct. | For those who buy new cars often and have a lot of costs related to the purchase, maintenance, and use of the car, this method could lead to a higher tax deduction—especially if the taxpayer drives very few miles. |
Flat Rate per Business Mile |
| N/A |
Other Mileage Rates |
| N/A |
Deduct Depreciation | Included in mileage rate | ✓ |
Deduct Gas | Included in mileage rate | ✓ |
Deduct Loan Interest | ✓ | ✓ |
Deduct Personal Property Taxes | ✓ | ✓ |
Deduct Parking Fees and Tolls | ✓ | ✓ |
Taxes are easier with clean books. Get on top of your financials today with Merritt Bookkeeping. |
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Using the Standard Mileage vs Actual Expenses Methods
Standard Mileage Method
If you want to use the standard mileage rate for a specific vehicle, you must select that method in the first year the car is used in the business. Then on future tax returns, you can continue with the standard mileage rate or switch to actual expenses. Your standard mileage rate deduction is simply the standard mileage rate multiplied by the number of business miles driven.
Deductible Business Expenses in Addition to Mileage Rate
When using the standard mileage rate method, there is no need to track actual vehicle expenses for the year. However, you should still keep the purchase details in an accessible place in case you decide to switch to the actual vehicle expense method in the future. You will also want to track some vehicle-related business expenses that aren’t covered by the standard rate.
Vehicle-related expenses that can be deducted in addition to the standard mileage rate include:
- Business-related parking and toll fees
- The business portion of any personal property tax that you paid to renew your license plate
- The business portion of your car loan interest
Actual Expense Method
To use the actual expense method, you must track the cost of using the vehicle for both personal and business purposes for the entire year. Then, multiply that number by the business use percentage The business use percentage is calculated by dividing the business miles by the total miles (both business and personal) driven during the year. .
Deductible Actual Vehicle Business Expenses
Under the actual expense method, you may claim a deduction for any of the following actual expenses times your business-use percentage:
- Depreciation
- Gas
- Oil
- Repairs
- Lease payments
- Registration fees and licenses
- Interest portion of car payments
- Car insurance
- Car washes
- Garage rent
- Tires
How to Calculate Your Deduction With the Actual Expense Method
- Step 1: Calculate your business-use percentage as business miles divided by total miles for the year.
- Step 2: Total all actual auto operating expenses for the year (both business and personal).
- Step 3: Multiply total actual expenses by business use percentage (step 1 × step 2).
- Step 4: Add direct business expenses related to your automobile (not allocated on mileage).
These expenses include the following:
- Parking at business locations
- Tolls during business tips
- Step 5: Figure your actual automobile deduction by adding the figures from steps 3 and 4.
Sample Computations of Mileage vs Actual Expenses
On Jan. 3, 2025, Mr. X purchased a van for his mobile car wash business. He placed the van in use on Jan. 4, 2025. Between Jan. 4, 2025, and Dec. 31, 2025, the following applied:
- Mr. X drove the van 8,000 business miles and 2,000 personal miles.
- The actual vehicle expense for the entire 10,000 miles of use was $14,200, including $12,200 of depreciation.
Standard Mileage Method | Actual Expense Method | |
|---|---|---|
Business Miles | 8,000 | 8,000 |
Personal Miles | 2,000 | 2,000 |
Total Miles | 10,000 | 10,000 |
Depreciation | N/A | 12,200 |
Other Actual Vehicle Expense | N/A | 2,000 |
Deduction % for Actual Method | N/A | 80% |
2025 Standard Mileage Rate | 0.70 per mile | |
Deduction to Tax Return | 5,600 | 11,360 |
Computing the Standard Mileage Deduction
For 2025, Mr. X’s standard mileage deduction for the year is $5,600 (8,000 miles × 70 cents per mile).
Computing the Deduction Using the Actual Expenses Method
Mr. X‘s 2025 deduction using the actual expense method is $11,360. We arrived at this calculation by following this process:
- Step 1: Figure 80% business use by dividing business miles by total miles [8,000 ÷ (2,000 + 8,000)].
- Step 2: Sum total actual operating expenses of $14,200 ($12,200 + $2,000).
- Step 3: Calculate the business portion of operating expenses by multiple total expenses by the business use percentage ($14,200 × 80% = $11,360).
- Step 4: Add indirect expenses to the business portion of operating expenses.
- Step 5: Total actual vehicle deduction is $11,360 plus $0 indirect expenses.
Takeaways: When we compare both outcomes, we see that Mr. X receives a higher deduction in 2025 using the actual expense method. However, if he:
- Plans on keeping the vehicle for a long time, then it might be better to claim the standard method in 2025 to maximize the deduction over the vehicle’s life.
- Generally gets a new vehicle every few years, he is probably better off taking the actual expense deduction in 2025 and future years.
Which Method Should You Choose?
In general, when comparing the standard mileage vs actual expense methods, the standard mileage rate is preferred when the vehicle is driven frequently and repair and maintenance are minimal. On the other hand, because you can get the full depreciation deduction with the actual expense method, it’s optimal if you own high-cost vehicles or if you don’t drive the car that much but use it a lot for business.
How to Switch Between Vehicle Deduction Methods
Converting From Standard Mileage to Actual Expenses
There are no restrictions for switching from the standard mileage rate to the actual expense method for cars you own. However, calculating depreciation after switching to the actual method is complicated.
- Step 1: Reduce the cost of your vehicle by a set rate for each mile claimed using the standard mileage rate in prior years. The rate is determined by the year in which the standard mileage rate was deducted:
- 33 cents per mile for miles claimed in 2025
- 30 cents per mile for miles claimed in 2024
- 28 cents per mile for miles claimed in 2023
- 26 cents per mile for miles claimed in 2022 or 2021
- Step 2: Calculate depreciation using the straight-line method over the vehicle’s remaining estimated life.
You cannot switch from the standard mileage rate to the actual method for leased vehicles. If the standard mileage rate is elected, you must use it for the entire term of the lease.
Converting From Actual Expenses to Standard Mileage
You cannot switch to the standard mileage rate if the actual expense method was used in the first year the vehicle was in service. However, if you elect the standard mileage rate in the first year of service for a car you own, then you can switch freely between the two methods in later years as long as only straight-line depreciation is used for every year in which the actual expense method is elected.
Frequently Asked Questions (FAQs)
You must keep track of your miles with either a log or a mileage tracker. The law requires that you substantiate your expenses by adequate records or by sufficient evidence to support your own statement.
No, employees can’t deduct any unreimbursed employee expenses, including automobile expenses. However, some employers will reimburse you for the use of your personal automobile using the standard mileage rate. The employer reimbursement is tax-free.
No. Even if the vehicle is in your name, you can claim this deduction, so long as you use your vehicle for business purposes.
Bottom Line
If you use your vehicle for business purposes, you may be able to deduct some of the expenses you incur. The standard mileage rate and the actual expense methods are available to those who meet the requirements for these write-offs. Both the condition of your vehicle and the amount of miles driven in the year can greatly impact which method works best for you.
