Does the IRS Mileage Rate Include Gas?
Understand the IRS standard mileage rate for vehicle expense deductions. Gain clarity on its inclusions, alternatives, and documentation for compliance.
The Internal Revenue Service (IRS) offers a simplified method for taxpayers to deduct the costs of using a vehicle for business, medical, moving, or charitable purposes. This approach, known as the standard mileage rate, aims to reduce the record-keeping burden associated with claiming vehicle expenses. It provides a set per-mile rate that taxpayers can use to calculate their deduction, rather than tracking every individual expense. The standard mileage rate is adjusted annually to reflect changes in the costs of operating a vehicle.
What the Standard Mileage Rate Covers
The standard mileage rate is a comprehensive figure covering most vehicle operating expenses. This includes costs like gasoline, oil, maintenance, repairs, tires, depreciation or lease payments, insurance premiums, and vehicle registration fees.
Choosing this comprehensive method means taxpayers cannot claim separate deductions for these individual costs. For instance, you cannot deduct specific amounts spent on gas or car insurance if using the standard mileage rate. The IRS sets this rate annually based on factors like fuel prices and maintenance expenses. For the 2025 tax year, the standard mileage rate for business use is 70 cents per mile.
Expenses Not Included in the Mileage Rate
While the standard mileage rate is broad, certain vehicle-related expenses are not included and can be deducted separately. These costs are not directly tied to miles driven. Common exclusions include parking fees and tolls incurred for business travel.
Taxpayers can deduct these separately, even when using the standard mileage rate, provided they maintain proper records. For example, parking garage fees or toll road charges can be added to the overall deduction.
Deciding Between the Standard Rate and Actual Expenses
Taxpayers generally have two primary methods for deducting vehicle expenses: the standard mileage rate or the actual expense method. Choosing between these options involves evaluating which approach yields a larger deduction and aligns better with record-keeping preferences. The actual expense method requires tracking all specific costs incurred for the vehicle’s operation. This includes expenses like gasoline, oil, repairs, insurance, vehicle registration fees, and depreciation or lease payments.
If a taxpayer elects to use the actual expense method in the first year a vehicle is placed in service for business, they are generally required to continue using this method for that specific vehicle for its entire life. Conversely, if the standard mileage rate is chosen in the first year, taxpayers retain the flexibility to switch between the standard mileage rate and actual expenses in subsequent years. This flexibility can be beneficial if vehicle expenses fluctuate significantly year to year. The depreciation component within the standard mileage rate for 2025 is 30 cents per mile.
Taxpayers should consider calculating their deduction using both methods to determine which one provides the greater tax benefit. The standard mileage rate offers simplicity, requiring only mileage tracking, whereas the actual expense method demands meticulous record-keeping of every cost. High-mileage drivers with lower operating costs may find the standard rate more advantageous, while those with significant repair expenses or high depreciation might benefit more from the actual expense method.
Keeping Accurate Mileage Records
Maintaining meticulous records is crucial for substantiating vehicle expense deductions, regardless of whether the standard mileage rate or actual expenses method is chosen. The IRS requires specific information to support mileage claims. This documentation should include the date of each trip, the destination, the business purpose of the travel, and the total mileage driven for that trip.
Records can be kept using mileage logs, smartphone apps, or by noting odometer readings. While not required for every trip, annual odometer readings are helpful for verification. Proper documentation is essential for supporting any claimed deductions during an IRS audit. Records should generally be retained for at least three years from the tax filing date.