With business laws also evolving, staying up-to-date on changes to certain rules crucial for small to medium-sized business owners and HR professionals. Recent studies show that a significant portion of business expenses goes towards transportation costs, making it essential to stay updated with the latest IRS standard mileage rate changes.
In this article, we will discuss the changes to the IRS standard mileage rate for 2025. After reading this article, you should feel comfortable on what the IRS standard mileage rate is, its increase from the previous year, what items are included in this rate, and how it impacts your business and tax practices.
What is the IRS standard mileage rate?
The IRS mileage rate is designed to simplify the process of accounting for vehicle-related expenses. Instead of keeping receipts for every gallon of gas, oil change, or maintenance bill, you can calculate a per-mile deduction or reimbursement based on the standard mileage rate. It’s an efficient way to account for costs incurred when driving for business, medical, moving, or charitable purposes.
What is the IRS standard mileage rate for 2025?
On December 19th, the IRS announced updates to the standard mileage rate for 2025, which take effect on January 1st.
Here are the rates for 2025:
- Business Use: 70 cents per mile, an increase of 3 cents from the 2024 rate of 67 cents.
- Medical Purposes: 21 cents per mile, unchanged from 2024.
- Moving Purposes: 21 cents per mile, applicable only to qualified active-duty Armed Forces members, also unchanged from last year.
- Charitable Organizations: 14 cents per mile, which remains the same as in 2024.
The 3-cent increase for business use is due to rising costs associated with operating a vehicle, while the rates for medical, moving, and charitable purposes remain the same. This small adjustment for business mileage underscores the importance of staying informed about annual updates to ensure compliance and maximize potential deductions or reimbursements.
What was the IRS standard mileage rate for 2024?
To provide context into the rate for 2025, let’s look back at 2024. The standard mileage rates for 2024 were:
- Business Use: 67 cents per mile.
- Medical and Moving: 21 cents per mile.
- Charitable Organizations: 14 cents per mile
What is included in the mileage rate?
The IRS standard mileage rate is designed to simplify the process of accounting for vehicle expenses for business, medical, moving, or charitable purposes. Here’s what it encompasses:
- Fuel Costs: A significant component of the rate, it covers the money spent on gas or diesel.
- Maintenance and Repairs: Regular wear and tear, oil changes, tire rotations, and other routine maintenance are included.
- Insurance: The rate factors in a portion of the auto insurance cost.
- Depreciation: A calculated amount for the loss in value of your vehicle over time is included.
- Registration and Taxes: The rate includes an average of vehicle registration fees and personal property taxes.
What the IRS mileage rate does not include
While the standard mileage rate is comprehensive, there are expenses it does not cover:
- Parking Fees and Tolls: These costs are not included in the standard rate and must be accounted for separately.
- Fines and Violations: Any fines or tickets incurred during business use are not covered.
- Interest on a Car Loan: The interest paid on a vehicle loan is not included in the mileage rate.
- Lease Payments: For those who lease vehicles, the standard rate does not cover the lease payments.
- Personal Use: Any expenses incurred during personal use of the vehicle are excluded.
Who can use the standard mileage rate?
The standard mileage rate can be used by:
- Self-employed individuals and independent contractors for business-related driving.
- Employees when using their personal vehicles for business purposes are subject to their employer’s reimbursement policy.
- Active-duty members of the Armed Forces for moving under orders.
- Individuals driving for medical purposes or in service of charitable organizations.
How does this impact my taxes?
For business owners and HR professionals, understanding the tax implications of these changes is important.
- Self-employed individuals can deduct the standard mileage rate for business miles driven from their taxable income.
- Employers reimbursing employees at or below the standard rate will not have the expense reimbursements taxed as income. However, reimbursements above the standard rate will be taxable.
- Employees should note that unreimbursed business mileage is no longer deductible under the Tax Cuts and Jobs Act, except for certain groups like Armed Forces reserves and fee-based state or local government officials.
- For all taxpayers, it’s important to maintain accurate records of mileage to substantiate deductions and reimbursements.
Conclusion
The increase in the IRS mileage rate for 2025 reflects the increasing costs of operating a vehicle. For employers and HR professionals, staying informed and adapting to these changes is key for compliance. By understanding and applying these rates appropriately, businesses can ensure they are maximizing their deductions and reimbursements.
For further information and detailed guidelines, consult the IRS website or reach out to a tax professional. Feel free to reach out to our team here with any questions or needs you have.