In 2025, the IRS raised the standard mileage rate to 70 cents per mile. That increase plus the way you track, deduct, and choose between mileage or actual expenses, can mean the difference between saving a little and saving a fortune.

This guide breaks down the updated rules, the two main deduction methods, common mistakes, and how to keep the IRS off your back while putting more money in your pocket.

What’s New in 2025

The IRS bumped the standard mileage rate to 70 cents per mile (up from 67 cents in 2024). That means:

• Business use = 70¢ per mile
  
  
• Medical or military moving = 21¢ per mile
  
  
• Charitable driving = 14¢ per mile
  
  

On top of that, bonus depreciation is back to 100% indefinitely. If you’re buying larger business vehicles, this creates a powerful tax-saving opportunity.

How to Deduct Auto Expenses (2 Ways)

There are two IRS-approved methods. The right choice depends on your vehicle and mileage:

1. Mileage Method
   Quick and easy. Track your business miles and multiply by 70¢. Great for inexpensive vehicles with heavy business use.
2. Actual Expenses
   More detailed, but potentially bigger savings. Deduct a share of your fuel, insurance, repairs, and depreciation based on business use. Ideal for newer or heavier vehicles.
   
   

Rule of thumb:

• High mileage + low cost car → mileage method usually wins.
  
  
• High cost + low/medium mileage → actual method often better.
  
  

Depreciation and the 6,000-Pound Rule

Depreciation is one of the biggest advantages of the actual method.

• Vehicles under 6,000 lbs GVWR: max first-year deduction (including bonus) = $20,200 in 2025.
  
  
• Vehicles over 6,000 lbs GVWR: qualify for Section 179 + 100% bonus depreciation = potentially a full write-off in year one.
  
  

This makes SUVs, trucks, and heavy vehicles a powerful tax strategy if purchased for business.

Recordkeeping the IRS Requires

To defend your deduction, you need:

• Mileage logs: Beginning and end odometer readings for the year, plus purpose, date, and miles for each trip.
  
  
• Receipts: Fuel, insurance, maintenance, and other actual expenses.
  
  
• Storage: Keep digital copies of all records for at least 3-7 years.
  
  

You can track miles daily, or use an IRS-approved 3-month sample if your business driving is consistent year-round.

What Counts (and What Doesn’t) as Business Miles

The IRS only lets you deduct miles that are directly tied to your business. Here’s what counts:

• Trips from one office location to another
  
  
• Driving to client meetings, conferences, or networking events
  
  
• Service calls, deliveries, or on-site jobs
  
  
• Runs to the post office, supply stores, or the bank for business
  
  
• Airport travel for business trips
  
  

If the purpose of the trip is to earn income or support your business operations, it generally qualifies.

Does not qualify:

Some common trips business owners try to write off, but can’t, include:

• Commuting: Driving from home to a regular office location is considered personal, not business.
  
  
• Personal errands: Grocery store runs, school drop-offs, or anything not business-related.
  
  
• Vacations: A personal trip doesn’t qualify. If you mix business into travel, only the business portion counts.
  
  

Pro tip: If you have a home office that qualifies, trips from home to another office or client site can count as deductible business miles.

How to Claim the Deduction

• Sole Proprietors & Single-Member LLCs: Deduct directly on Schedule C.
  
  
• S Corporations: Use an accountable plan. The S Corp reimburses you for business use of the vehicle, creating a business deduction on the return and tax-free income to you.
  
  

Note: If you use actual expenses and later sell the vehicle, you may need to recapture depreciation and report a gain.

Action Steps to Maximize Your 2025 Auto Deduction

1. Pick your method: Mileage vs. actual—run both and compare.
   
   
2. Track everything: Miles, receipts, dates, purposes.
   
   
3. Understand depreciation: Know if your vehicle qualifies for bonus or Section 179.
   
   
4. Keep documentation: Digital copies are fine, but keep them organized.
   
   

TLDR: 

The IRS raised the mileage rate in 2025, and bonus depreciation is back at 100%. Whether you drive a compact car or a heavy SUV, the way you handle your auto deductions could save you thousands.

Choose the right method, keep your records clean, and don’t let the IRS intimidate you out of claiming what’s yours. 

And if you want expert help implementing this deduction (along with other tax strategies), our team at TaxElm is here for you. Schedule your free discovery call today.

Listen to the full episode now.

Transcript

[00:00:00] Intro: Hidden Tax Savings in Auto Deductions
Most business owners are driving right past thousands of dollars in tax savings without even knowing it. In 2025, the iris bumped the business mileage rate to 70 cents per mile. But here's the thing, that's just the beginning. Whether you drive a few hundred miles or tens of thousands, the way you track, deduct and choose between business mileage and actual expenses could meet the difference between saving a little.

And saving a fortune. Today, I'm breaking down the exact rules, the biggest mistakes people make in how to structure your vehicle deductions so that you keep more money in your pocket. And out of the Iris's hands. Stick with me because by the end you'll know exactly how to turn every business mile into a money maker.

[00:00:58] What’s New for 2025
Alright, so let's get started and first off, talk about what's new for 2025 because there have been a lot of changes that have gone through and the biggest one is first the standard mileage rate. The standard mileage rate increased to 70 cents per mile for business use. So it's up from 67 cents in 2024 up to 70 cents.

So it went from 67 cents to 2024 to 70 cents in 2025. That's a 3 cent bump. So that's great news. Other rates, if you're looking at medical mileage or moving mileage, if you're military only those remain at 21% and charitable mileage remains at 14 cents mile. So that's one thing I wanna talk about.

Sometimes people think just business mileage. If you have medical or moving from military only, moving military only, or medical expenses, you can get or medical mileage, you can get a deduction for that as well. So medical. Is 21 cents a mile. And then if you're driving for charitable purposes, you also get a deduction of 14 cents a mile for that.

So always keep that in mind. And then the other big change, which we'll talk about a little bit later, about when using the actual method is that bonus depreciation for 2025 and indefinitely is now at a hundred percent. And so if you're buying big business vehicles, that can be super beneficial for you and super powerful.

[00:02:06] Why Every Business Owner Should Have Auto Expenses
Now, when we talk about auto. I truly believe that every business owner, regardless of your industry, regardless of whether you have a home office or you go somewhere, if you work from home, a hundred percent, every business owner should have some type of auto expense. And when I talk to a business owner and I look at a tax return, I look at that auto piece, and if I don't see anything there, I say, we're missing out on something.

Now, it might not be tens of thousands of dollars for everybody. So for some it might be, but not for everybody, but everybody should have something in there. So go to your tax return last year, and if you don't see anything in the automobile expense deduction, that means you're missing out. That means you're missing out on an opportunity for that.

And some business owners will that work from home, say, might. How would I ever have mileage? And I said, do you ever go to a business meeting ever? Do you go to networking events? Do you run business errands? Maybe you're getting supplies. Maybe you're gonna the post office. Do you ever go anywhere for travel?

Maybe you're going to the airport. Well, there's mileage to get to the airport. And so those are just different ideas. Business meetings, business errands, airport trips, everything like that is gonna add up to something. Again, it might not be massive, massive numbers, but every business owner should have some type of auton.

[00:03:15] Two Main Methods: Mileage vs. Actual
Now when we talk about auto, there's two main methods that we get to choose from. We can choose the mileage method or the actual method, and we're gonna break down kind of which, what the difference is between those. But just know this, if you lease a vehicle, once you pick a method. You have to stick with it for the life of that lease.

So if you're someone that likes to lease vehicles, you have to pick a method, and that's the method that you're gonna have for the life of that lease. Now, if you purchase a vehicle and you choose the actual method in year one, you must continue with that actual method In future years, you can't go from actual.

Two mileage. But if the mileage method is chosen in year one, you can switch to the actual method in future years if you wish to. But you're gonna have to use straight line depreciation for that. So you're not gonna be able to take advantage of bonus depreciation or anything like that. So choosing which method you're gonna use matters because it can change the way that you're gonna get deductions for this automobile, and that's why it's super important to make sure that you're choosing a method that's gonna help you this year, gonna help you in future years as well.

[00:04:15] Standard Mileage Method
So let's talk about method number one, the standard mileage method, and this one's pretty simple. Basically you calculate what are your business miles driven, and you multiply it by 70 cents. That's it. That's the simplify. That's the simple method. That's the standard mileage method business miles times 70 cents.

That's your deduction.

[00:04:33] Actual Expense Method
Now, the actual method goes much more in depth and it takes a lot, much more record keeping as well. But first you need to find out what your business use percentage is. And so business use percentage is gonna be business miles divided by total miles. So you take your business use percentage business miles divided by total miles, and then you multiply that by all the costs associated with that vehicle.

So think of things like fuel. Maintenance depreciation on that vehicle. That's that bonus depreciation, that's a big one. Insurance fees, car washes, all these different things. So you take out all these business expenses, everything that it took to run that vehicle, and you're gonna multiply that by your business use percentage, and that's your deduction.

[00:05:15] When to Use Mileage vs. Actual
So you have to use the mileage if you're under 50% business use. So if you just have, you know, you're that person that maybe doesn't drive much for work, but you have a couple errands, maybe you're gonna the airport, those types of things, and you're under 50% business use for a vehicle, you're gonna use that, the mileage method right off the bat.

And if you're over 50%, then you get to choose. And so my thi what I always tell people is run. The numbers and run the numbers, not for this year, but also run the numbers maybe two or three years out too, just to make sure that this method not only makes sense this year, but it makes sense in future years as well.

So always run the numbers and choose the method that makes the most sense. Choose the method that's going to give you the biggest deduction. And I have some general theories. So generally we're gonna go the mileage method. If you have a low cost vehicle and high mileage, so a vehicle that that doesn't cost much, but you're driving a lot.

Typically the mileage method is gonna give you a better deduction. It's more simple. It's easy to do, and especially you're gonna use it if you're looking for that simplicity. Or if you have less than 50% business use on a vehicle. Now, when do we look at the actual method? Typically, if we have a high cost vehicle and low mileage they're gonna be bonus eligible.

So if you're looking for a big first year deduction, we might wanna be looking at the actual method and we're gonna talk about that deduction, how it works, where you take it, everything like that. Next, and typically once we start to see bigger vehicles, so vehicles with A-A-G-V-W are over 6,000 pounds, a vehicle weight of over 6,000 pounds.

Generally, we're gonna be looking at the actual method because they. Typically fit that description. They're a higher cost and they're bonus depreciation eligible. So those are kind of the two main numbers. Low cost vehicle, high mileage. We're gonna tend to go towards the mileage method, high cost vehicle, lower mileage, or high cost vehicle with medium mileage.

Generally we're going to, we're gonna lean towards the actual method, but run the numbers, find the things that make sense.

[00:07:10] Depreciation Rules
So the next thing I wanna talk about is depreciation. And now depreciation would only be used if you're using the actual method. So if you use the mileage method, you don't get gas, you don't get maintenance, you don't get those costs because you're using the mileage method and it's wrapped into that.

But if you're using the actual method, now we're getting all these expenses and we're multiplying it by your business use percentage. So depreciation is one of the biggest pieces of that actual cost method over and above the gas and all those other things. Depreciation is a big indicator on that.

And when it comes to depreciation. There's this thing that the IRS calls the GVWR, and that's the gross vehicle weight rating in every vehicle. If you type in your vehicle or you go to the manufacturer, wherever it might be, you can find out what the GVWR of your vehicle is, and that GVWR number matters a lot when it comes to depreciation.

Essentially, if that GVWR number is less than 6,000 pounds, the max deduction that you can get in year one, including bonus depreciation in 2025 is $20,200 and they call it kind of a luxury vehicle. So again, if GVWR is under 6,000 pounds, the max deduction that you're getting in 2025 in year one, if you use the actual method, is $20,200, and that includes bonus depreciation.

But if that GVWR goes above 6,000 pounds, now you're gonna get a massive deduction or the opportunity for a big deduction. So first you're gonna use Section 179 deduction, and then you're gonna take 100% bonus depreciation on the remaining amount of whatever that vehicle cost is, and that provides a 100% deduction in year one. And that can be super powerful. That can be super powerful to create a big upfront deduction for a new vehicle that you might purchase.

Again, that's something we want to consider into the formula we're using, but we don't wanna force into this if the mileage method over time is actually gonna give us much better benefits. So again, make sure that you're running those numbers. That's super important.

[00:09:52] Recordkeeping Requirements
Alright, so the next thing I wanna talk about is some record keeping requirements because as with any tax strategy, we gotta do this thing right. We gotta dot our I's and cross our T's and make sure that if the IRS ever comes knocking, we don't have to worry about it because we have the support to back it up.

So what bookkeeping or recordkeeping requirements are required in this whole automobile deduction opportunity? The first one and the major one is mileage logs. You need to track a starting and ending odometer reading. So what was the starting odometer in the beginning of the year and what was the ending one on 12/31. That's gonna tell you what the total miles for that vehicle is.

The next thing you wanna do is every trip you take, you're gonna wanna write down the purpose of that trip, the date of that trip, and what the business miles were. And this is gonna be required if you're doing mileage or actual method. And it's also gonna be required, even if it's a hundred percent business use, you still want a mileage log to prove that's 100% business use. Because if the IRS comes knocking and they say, okay, you said it's 80% business use, prove it. And how do you prove it? You provide them a mileage log for that.

So there's a couple different ways to do a mileage log. First, you can just kind of track it in a book and have those done. You can use an app. There's lots of apps out there that kind of help you, where you swipe left for a personal and swipe right for a business or vice versa. So there's a lot of opportunities, but just make sure that you are keeping a mileage log.

Other people we see is they just have a calendar and they write down every day that they're driving, how many miles were business, how many were personal, and just a quick little blurb about what the purpose of that trip was. Met, had a marketing meeting with Bob or ran to the airport or picked up a client or whatever it is — a brief description of that.

And there's kind of two main methods I like to talk to business owners about, about a mileage method. The first one is every day of the year, so you're tracking every single mile that that vehicle's taken every day of the year. And that's an easy method. Typically, if you're gonna have an app for that, it makes it super easy.

The second option is a three month sample, and this is an approved IRS mileage log opportunity. And the three month sample basically says that if your business is kind of the same throughout the year, you can take a three month sample and say, okay, we're gonna go January through March, or we're gonna do April through June, and we're gonna do a three month sample. And that's gonna be what we use to determine our business use percentage.

And again, this is if you have a pretty level business throughout the year, it's not heavy in the summer and down in the winter. It's just pretty consistent. A three month sample is totally fine where you do that three month sample, you record every mile business and personal for that three months, and that's what you're going to use to find your business use percentage and you can annualize it for that. And that is also allowed.

[00:12:13] What Qualifies as Business Miles
So the biggest thing when we talk about this record keeping piece is we need to know what qualifies as an actual business mile and what doesn't. Because a lot of people get this confused.

So what qualifies? This is the easy one. If you're going from one office to another office, that's a business mile. If you're going from one customer to another customer, that's a business mile. If you're doing a delivery or a service call, or you know you're an electrician and you're going to the job sites, or someone needs a light fixture put in, obviously that's a business mile.

If you're going to meetings or conferences, that's gonna be a business mile. The biggest thing is if it's related to your business, it's a business mile. So make sure you're taking consideration into that. And we talked about last week, we talked about a home office deduction. If you have a home office deduction that can help amplify the amount of automobile deduction.

[00:13:05] What Doesn’t Qualify as Business Miles
So let me talk about what doesn't qualify. Commuting, and this is the biggest one that gets people mixed up. If you go from your home to an office of yours, that's considered a commute, and that is not deductible business mileage.

But if you go to an office first, maybe it's your home office, and then you go from one office to another, or an office to a customer or an office to another office, whatever it might be, that's no longer commuting. Those are deductible business mileage.

So if you go from your home, no home office, you just go from your home to an office that's commuting, not business mileage. If you then go to a client or another office of yours, now that's business mileage, but then your trip back home is gonna be commuting again.

But if you have a home office and it qualifies as a home office, and you're working in that home office to begin the day and to end the day, now we're going from an office to another office, to wherever we might go, back to an office — that can be deductible business miles, and that can amplify this automobile deduction.

If you're just taking a random vacation, of course that's not gonna qualify as business deduction. Now if you're mixing business into that vacation, now we're starting to bring it in. Obviously any personal trips and things like that are not gonna qualify as well.

So this one's pretty simple. What qualifies — business-related items make sense. Dot your I's, cross your T's, picture being across from the IRS agent and explaining what that drive was for. And say, yeah, that's business. You know, if you're like, boy, I'd really have to talk backwards forward to try to convince them of this, it's probably a personal mile. So just make sure you're watching that.

[00:14:18] Receipts and Documentation
The next thing you wanna make sure you're doing is keeping receipts. This is especially critical if you're using actual expenses: fuel receipts, maintenance cost receipts, insurance receipts. You're gonna want receipts for all this to prove the actual expenses you have, because remember, with the actual method, we're taking all of your expenses and multiplying it by your business use percentage.

Now with the mileage, all we need is mileage. We don't need all those costs because we're not getting a deduction for those costs. We're just taking the mileage deduction, which makes up for that deduction. But if we're not taking the mileage, we're doing actual, we need to keep those receipts.

And then of course, documentation storage. Keep these for, you know, three years. I typically keep everything for seven years. But keep this stuff on file. Keep those receipts on file. Keep that mileage log on file. Keep a digital version of it if you need it. You don't need to keep things in the corner of your office for 10 years. Keep a digital file of it. It's there if you need it.

If the IRS comes knocking, you have it. Likely it won't happen. But if it does, we want you to be prepared. We want you to be protected, and that's how we always talk about this implementation and correct implementation and how important it is.

[00:15:37] When a Vehicle Counts as “In Service”
Now, the big thing too is that if you want this deduction in 2025, that vehicle has to be put in service in 2025. And put in service means that you've driven at least one business mile.

So you go and buy a vehicle and you buy it on December 15th and they say, Hey, we'll deliver this vehicle to you in January because we need to do all these different things to it. You didn't drive it at all until January. You didn't even get the vehicle until January. That is not a 2025 vehicle. That's a 2026 vehicle.

Even if you paid for it in 2025, you didn't drive, you didn't put it in service, and you didn't drive a business mile in 2025. So make sure that if you're buying this, and we see a lot of people start to go to the dealership at the end of the year, make sure that you're putting this vehicle in service in 2025 if you want a 2025 deduction.

[00:16:12] Example: Mileage vs. Actual Method
Alright, so now that we kind of know this concept of a business vehicle, what qualifies, how to do it correctly, what the mileage looks like, what the deductions, what the different options are, I want to go through a quick example just to put some numbers to this, to help drive home this idea.

So let's say that you have a business vehicle. You drove for 12,000 miles throughout the year. And let's say that 10,000 of those miles were business. So 10,000 business miles, 12,000 total miles.

Now, when we talk about the actual method, we're gonna have to find out that business use percentage. So we're gonna take that 10,000 business miles divided by 12,000 total miles, and that's gonna give us our business use percentage, which is 83%.

So in this example, if we use the standard mileage, very easy. We're just taking that business miles times 70 cents. So 10,000 business miles times 70 cents. You get a $7,000 deduction. That's it. You're done. Easy, easy peasy.

Now, if we're looking at the actual method, and let's just say that between fuel, depreciation, insurance, maintenance, car washes, all that, let's just say you had actual expenses of $12,000. So actual expenses of $12,000. We'd have to find out our business use percentage. In this case, it was 10,000 miles divided by 12,000 miles, which is 83%.

So we're gonna take 83% and multiply it by our cost of $12,000, and that gives you a $10,000 deduction. So in this method, in this example, the actual method got us a $10,000 deduction and the standard mileage method got us a $7,000 deduction. Obviously, in this case, actual makes more sense, but that's not always the case.

And we also wanna look at it at multiple years to make sure that in the long term we're taking the best deduction. So again, this example shows that the actual wins, but it's not always gonna be the case. Run the numbers both ways.

Again, we have some of those standards. Typically, we say that if it's a high-cost vehicle, lower mileage, or medium mileage, typically we're gonna lean towards the actual method. Doesn't mean it's a guarantee. We're gonna lean that way. If it's a low-cost vehicle with medium or high mileage, we're gonna lean towards the mileage method, typically, because that's gonna give us a better deduction.

[00:18:17] How to Take the Deduction (Sole Prop vs. S-Corp)
So we now know, we've seen an example. How do we take the deduction? And this is the easy part, but it can confuse people, especially for our S-Corp owners out there.

So if you're operating as a sole proprietorship or a single member LLC, you're just gonna take the automobile deduction directly on your Schedule C. Easy enough.

Now, if you are operating your business as an S corporation, if this vehicle is owned by you personally, you're gonna need to use an accountable plan to reimburse yourself for that vehicle. So you're gonna put an accountable plan in place. You're gonna reimburse yourself personally for the business use of that vehicle, and you're gonna get a business deduction and it's not taxable income to you. But we need to make sure we set up an accountable plan and set that accountable plan up the right way, because that's what's gonna protect us and make sure it's not taxable for us.

Another thing to consider is that if you're using the actual method and you eventually sell a vehicle, remember part of the actual method is taking depreciation, so you're gonna need to recapture and report a gain if applicable on that sale of that vehicle. So just keep that in mind — we're taking this big depreciation now, but if we go sell that vehicle four months from now after we just took depreciation, there's gonna be a gain there and there's gonna be some depreciation recapture that we want to think about.

[00:19:30] Recap and Action Steps
Alright, so let's recap this and make some action steps on what you can do to make sure that you are taking advantage of everything possible from the automobile deduction here in 2025.

First, you need to pick your method, the standard mileage method versus the actual method. Compare it with estimated miles and expenses and just run a comparison to see what makes sense and pick your method. Again, the method that you choose from the beginning oftentimes is important because it can be something you're stuck with, or at least if you choose to go away from it in a vehicle that you own, you're limited a little bit down the road.

So make sure that you pick the method, run the numbers, make sure it makes sense, and find the method that makes the most sense for you, your business type, your business costs, and the amount of mileage that you typically run.

The next thing we wanna do is make sure that we're logging meticulously. We want miles, dates, purposes, receipts. We want all of that information for us. And remember, if you have a lease vehicle, you can't switch methods mid-lease. You're kind of stuck with whatever method you start with.

Biggest thing is educate yourself on depreciation. And if you're going that actual method route, educate yourself on this depreciation and choose which depreciation method you want to do, whether it's 179 and bonus, or maybe you just wanna do straight line. You want to educate yourself a little bit on that depreciation. But remember, with bonus depreciation back at a hundred percent indefinitely, that provides a really good opportunity to create massive deductions in your business if you have a vehicle with a GVWR rating of over 6,000 pounds.

And then the final thing is documentation. Make sure you have receipts. Make sure you're tracking everything, especially if you're using the actual method. Make sure you have all this stuff on file, and don't forget about that mileage log.

[00:21:14] Closing and CTA
So that's a wrap on maximizing your 2025 auto deductions. To recap, the standard mileage rate is now 70 cents per mile, but keep your records tight, whether you're using the standard rate or going the actual expense route. Keep your records tight.

If you found this helpful, don't forget to subscribe. Hit that like button and share it with a business owner who's sick of paying too much in tax. And if you want help from our team of tax professionals implementing this strategy along with so many other tax strategies, visit taxelm.com. That's TAXelm.com, or click the link in the description for a free discovery call. We are helping business owners like you legally lower your tax bill every single day.

Thank you, and I'll see you on the next one.