For businesses that rely on driving — whether for sales calls, deliveries, or service visits — rising fuel costs can quickly add up. Even a small increase in gas prices can significantly affect your bottom line, which is why the IRS adjusts the standard business mileage rate annually. The 2025 rate is now in effect, and while a few extra cents per mile might not seem like much, it can have a meaningful impact on tax deductions, reimbursements, and overall travel expenses.

Why the Mileage Rate Changes

The IRS doesn’t base the mileage rate solely on fuel prices, despite the media focus on gas costs. Instead, it is meant to reflect the full expense of owning and operating a vehicle for business purposes. This includes not just fuel, but also maintenance, insurance, and vehicle depreciation.

Each year, the IRS analyzes data on these costs and makes adjustments. In the case of significant changes, such as a sharp rise in gas prices, the IRS can release a mid-year update. However, such adjustments are not made every year.

The 2025 Mileage Rate: A Small Increase

For 2025, the standard business mileage rate has increased to 70 cents per mile, up from 67 cents in 2024. This 3-cent hike reflects ongoing increases in vehicle-related expenses. While the rise might seem modest, it can add up for businesses with employees who travel frequently. Companies with sales teams, service technicians, or delivery drivers may need to revise budgets and reimbursement policies to account for the higher rate.

Standard Mileage Rate vs. Actual Expenses

Businesses can deduct vehicle expenses using either the standard mileage rate or actual expenses.

The standard mileage rate is the simpler option: multiply the number of business miles driven by the IRS rate, and you’re done. There’s no need to track fuel, oil changes, or repairs — just maintain a mileage log with dates, destinations, and purposes of trips.

On the other hand, actual expense deductions require a more detailed record-keeping process. Instead of using a set per-mile rate, businesses calculate the total cost of fuel, maintenance, insurance, and depreciation for the year and then deduct the portion that applies to business use.

If your business involves a lot of driving but you maintain low costs (e.g., using a fuel-efficient vehicle), the standard mileage rate might be the better option. However, if actual expenses exceed what the mileage rate covers — such as high repair costs, frequent maintenance, or costly insurance — tracking expenses in detail could result in a larger deduction.

Keep in mind, the standard mileage rate isn’t available to every business. It can’t be used if you’ve already taken a different depreciation method for the vehicle, if you’re claiming certain first-year depreciation deductions (like Section 179), or if the vehicle has been depreciated beyond IRS limits.

Considerations for Employee Mileage Reimbursement

If your business reimburses employees for using their personal vehicles for work, using the IRS mileage rate simplifies the process and keeps the reimbursements tax-free. Employees cannot deduct unreimbursed mileage on their own taxes, so offering a mileage-based reimbursement helps cover these costs for them. However, to keep these reimbursements non-taxable, employers must follow IRS guidelines:

• Employees must track and submit mileage records.
• Reimburse based on actual business miles driven.
• Reimburse at or below the IRS standard rate (anything above that is considered taxable income).

Having a clear and compliant reimbursement policy not only ensures tax compliance but also helps attract and retain employees who drive for work.

Next Steps

If your business involves driving, now is the time to review the new mileage rate, assess its impact on your costs, decide which deduction method to use, and ensure your employee reimbursement policies are properly structured.

For personalized guidance or if you’re unsure which approach is best for your business, don’t hesitate to reach out to our office.