Standard mileage vs. actual expenses

If you drive your personal vehicle for work—whether you’re self-employed or otherwise—many of the costs associated with that business travel may be deductible, helping you lower your tax burden for the year. The IRS offers businesses two different methods for claiming work-related car expenses: the standard mileage rate method, and the actual expenses method. 

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In this article, we’ll explain how these two deduction methods are calculated and what kind of information you’ll need on hand for them. We’ll also explain how to switch between the standard mileage rate and actual expenses deduction methods. 

Claiming the standard mileage deduction

To use the standard mileage rate method, all you’ll need to do is keep track of how many miles you (and your employees) drove for business each year. This mileage tracking can be done in a physical mileage log, spreadsheet, or digital mileage tracker, or specialized software. Your business mileage log should also detail the date and work purpose of the trip (note that everyday work commuting cannot be deducted). 

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Then, at the end of the year you’ll simply multiply the number of miles driven by the standard mileage rate for the tax year—67 cents per mile for the 2024 tax year, and 65.5 cents per mile for the 2023 tax year. The resulting amount is how much of a standard mileage deduction you can claim on your tax return. 

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[# of miles] x [standard mileage rate] = [deduction] 

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If, for example, your employees drove a total of 5,000 miles for work purposes over the course of the 2024, the calculation would look something like this:

5,000 x $0.67 = $3,350 deduction

What is the standard mileage rate?

The standard mileage rate is the dollar amount that a business is allowed to deduct for each business mile driven over the course of a year. It’s set annually by the IRS, and is also called the IRS mileage rate. For the 2024 tax year, the standard mileage rate is 67 cents per mile. 

What expenses does the standard mileage rate cover?

The standard mileage rate is meant to be reflective of all of the average costs associated with owning and operating a vehicle. This includes fixed and variable costs of using a vehicle for business purposes, including the cost of:

• Fuel (gasoline, electricity, etc.)
• Materials and supplies (tires, oil, brake fluid, wiper fluid, etc.)
• Maintenance and repairs
• Depreciation
• Car washes and detailing
• Fees (licensing, registration)
• Insurance premiums
• Lease payments

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It does not account for operating expenses, such as parking fees and tolls. These expenses must be claimed separately, and require you to submit receipts for them to the IRS. 

Claiming the actual expenses deduction

To use the actual expenses method, you’ll first need to determine the business use percentage of your vehicle. Doing so will require you to log both your total mileage for the year as well as your business miles. You’ll then divide the number of business miles by the tidal mileage amount. 

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[business miles] / [total miles] = [business use percentage]

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In addition to mileage, you’ll also have to keep track of each individual expense you incur for your vehicle over the course of the year, plus receipts. This can include actual vehicle expenses like the cost of fuel, maintenance, repairs, supplies, new tires, licensing and registration fees, lease payments, insurance premiums, and vehicle depreciation. Add up all of these costs, and then multiply that dollar amount by your business use percentage to find your deduction.

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[total vehicle expenses] x [business use percentage] = [deduction]

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For example, let’s say you drove 8,000 miles over the course of the year, 2,000 of which were for business, and you spent a total of $10,000 on vehicle expenses. Finding your deduction would look like this:

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2,000 / 8,000 = 25% business use

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$10,000 x 25% = $2,500 deduction

Is it better to take the standard mileage rate or actual expenses?

There is no one right answer to whether the standard mileage rate method or the actual expenses method is better. Each has its pros and cons, which you’ll need to consider before choosing which one to go with for your business.

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If you’re looking for the simplest option, the standard mileage rate is probably the best route to take. That’s because you only have to keep track of one thing: how many miles you and your employees drove over the course of the year. 

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With the actual expenses method, you’ll need to track and document all of the business-related vehicle costs you and your employees incurred each year—which can quickly become complicated. And if you’re missing receipts or service records, it might mean you have to forego th write-offs you are entitled to, or otherwise risk penalties if your business is audited by the IRS.

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That being said, it’s possible for the actual expenses method to result in a higher tax deduction than you’d receive by claiming the standard IRS mileage rate. That’s because the IRS bases the standard mileage rate on annual averages and expected costs, which can vary significantly on an individual basis. 

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With this in mind, if your goal is to save as much money as possible, you’ll want to calculate your deduction using both methods each year. Then, you can submit your claim using whichever method gives you the largest income tax deduction. 

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For example, let’s say you drove a total of 5,000 miles over the course of the year, with 1,000 being for business. During the year, your actual expenses equaled $6,000. Using the standard mileage rate method would result in a deduction of $670. Using the actual expenses method, on the other hand, would result in a deduction of $1,200—nearly twice as much.

Which method gives you the biggest tax writeoff?

Whether it’s the standard mileage rate method or actual expenses method that gives you the larger tax deduction will depend on your unique circumstances for the year. Factors to consider include:

• How many miles you drove for the year
• Whether or not you paid for any major maintenance or repairs
• How high your car or lease payments are
• Your car insurance premiums
• Whether you live in a location with above-average or below-average cost of living 

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The only surefire way of knowing that you’re receiving the largest possible deduction is to calculate it using both methods. Some expense management softwares may also be capable of calculating the deduction using both methods and telling you which way to claim. 

Can I switch to the standard mileage rate from actual expenses?

Generally speaking, yes, you can switch back and forth between using both methods. 

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But in order to be able to do so, the IRS requires that you use the standard mileage rate in the first year that you claim business use for your vehicle. In subsequent years, you are then free to choose whichever of the two methods you prefer. 

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If you don’t use the standard mileage rate in the first year that you claim business use of your vehicle, then you will be required to use the actual expenses method each year moving forward.

Ramp makes tracking vehicle expenses easy

Whichever method you choose to calculate your business vehicle deduction, it’s important you have a recordkeeping plan to track both mileage and business expenses. 

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Ramp’s expense management software facilitates:

• Accurate mileage calculations: Ramp integrates directly with Google Maps, making it easier than ever to accurately track and log mileage.
• Easy receipt collection: Employees are prompted to scan and save receipts whenever submitting a reimbursement request, protecting your business from the risks of a tax audit—especially if you claim actual expenses for business travel.
• Comprehensive employee reimbursements: With Ramp, you can manage your entire expense management and reimbursement program all in one place. 

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Interested in learning more about how Ramp makes tracking expenses easy? Request a demo, or try Ramp for free today.

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