IRS Regulations for Vehicle Mileage vs. Actual Costs: A Quick Guide

When claiming vehicle expenses for tax purposes, the IRS allows two methods: the Standard Mileage Rate and the Actual Costs Method. Here’s a breakdown of each option, their requirements, and how to decide which is best for you.

1. Standard Mileage Rate

The Standard Mileage Rate is a simplified method that reimburses you based on the IRS-approved mileage rate. This rate is updated annually and accounts for gas, maintenance, depreciation, and other vehicle-related costs.

• Eligibility:

  • You must own or lease the vehicle.

  • You must use the standard mileage rate in the first year the vehicle is used for business. After that, you may switch to the actual costs method.

  • Cannot use if you’ve claimed a Section 179 deduction or used the actual costs method for a vehicle in a previous year.

• Recordkeeping:

  • Keep a detailed mileage log showing:

    • The total miles driven.

    • The number of business miles.

    • The date, purpose, and destination of each trip.

• Calculation: Multiply your total business miles by the IRS mileage rate for the tax year. For 2024, the IRS rate is $0.67 per mile. For example, if you drove 5,000 business miles, your deduction would be $3,350.

2. Actual Costs Method

The Actual Costs Method allows you to deduct the direct costs of operating your vehicle for business purposes.

• Eligible Expenses:

  • Gasoline, oil, and maintenance.

  • Tires, insurance, and registration fees.

  • Depreciation (or lease payments for leased vehicles).

  • Repairs and garage rent.

• Business Use Percentage:

  • Only expenses related to business use can be deducted.

  • To calculate the deductible portion, divide your business miles by total miles driven during the year.

• Recordkeeping:

  • Maintain receipts, invoices, and a detailed mileage log.

Choosing Between the Two Methods

• Standard Mileage Rate:

  • Simpler to use.

  • Ideal for vehicles with low operating costs or for taxpayers who prefer less detailed recordkeeping.

• Actual Costs Method:

  • Potentially higher deduction for expensive vehicles or those with high maintenance and fuel costs.

  • Better for taxpayers with significant vehicle-related expenses.

Important Notes

• You cannot switch between methods mid-year. Decide which method works best for you and stick to it for the tax year.

• The IRS may require detailed records during an audit, so maintaining accurate and organized documentation is crucial regardless of the method you choose.

By understanding the rules for both methods, you can maximize your vehicle expense deductions while staying compliant with IRS regulations.

For personalized assistance, visit www.beyondthebooks.co or contact Catherine Lane, EA directly at cat@beyondthebooks.co for guidance and advice specific to your tax situation.

This document is for informational purposes only and does not constitute tax, legal, or financial advice. Tax laws and regulations are complex and subject to change. For advice tailored to your specific situation, consult a qualified tax professional or legal advisor.