What Expenses Does the Standard Mileage Rate Cover?
Demystify business vehicle deductions. Learn what the standard mileage rate accounts for and what additional expenses you can claim.
The standard mileage rate offers a streamlined approach for individuals and businesses to account for the costs associated with using a vehicle for business, medical, or charitable purposes. This rate simplifies expense tracking, providing a set amount that can be claimed for each mile driven. It serves as an alternative to the often more complex method of calculating and documenting every actual vehicle-related expense. The Internal Revenue Service (IRS) establishes these rates annually, reflecting an average of vehicle operating costs.
What the Standard Mileage Rate Includes
The IRS standard mileage rate is a comprehensive allowance designed to cover costs of operating a vehicle. For 2025, the business mileage rate is 70 cents per mile. This rate incorporates variable expenses, such as the cost of fuel and oil, which fluctuate with vehicle usage. It also accounts for routine maintenance and repairs, including items like oil changes and tire wear.
The standard mileage rate further includes fixed costs. These fixed components encompass vehicle insurance premiums and the vehicle’s depreciation. For leased vehicles, the rate covers an equivalent portion of lease payments. Vehicle registration fees and certain taxes, such as vehicle property taxes, are also included. This all-inclusive rate allows taxpayers to simply multiply their qualified business miles by the set rate, rather than itemizing each individual expense.
Expenses Not Covered by the Standard Mileage Rate
While the standard mileage rate covers many vehicle operating costs, it does not include all expenses incurred during business travel. Some costs can be claimed separately. Tolls paid during business trips can be deducted as a distinct expense.
Parking fees incurred during business activities are also separate expenses and can be added to the standard mileage deduction. Interest paid on a car loan for a business vehicle can be deducted separately. Personal property taxes assessed on the vehicle, if applicable, also fall outside the standard mileage rate and can be deducted independently.
Who Utilizes Mileage Information
Mileage information is relevant for several groups using personal vehicles for work-related activities. Self-employed individuals frequently use the standard mileage rate to calculate deductible business expenses on their tax returns. This method simplifies record-keeping, allowing them to reduce taxable income based on business travel.
Employees using personal vehicles for company business often receive reimbursement from employers. Companies may use the IRS standard mileage rate as a guideline for reimbursements, ensuring employees are compensated for business travel costs. While employers are not legally mandated to use the IRS rate, it serves as a common benchmark for tax-free reimbursement. Businesses also utilize mileage information to establish and manage reimbursement policies for employees. This ensures fair compensation and compliance with tax guidelines regarding deductible business expenses.