Standard mileage vs. actual expenses: Comparing mileage deduction methods

If you drive your personal vehicle for business purposes—whether you’re self-employed or otherwise—many of the costs associated with your business travel may be tax-deductible. The IRS offers businesses two different methods for writing off 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 to calculate these two deduction methods and what information you’ll need to do it. We’ll also explain how to switch between the standard mileage rate and actual expenses deduction methods.

Claiming the standard mileage deduction

The standard mileage rate is the dollar amount that a business can deduct for each business mile driven over the course of a year. The IRS sets the standard mileage rate annually. For the 2024 tax year, the IRS standard mileage rate is 67 cents per mile.

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To use the standard mileage rate method, you just need to keep track of how many business-related miles you drive each year. You can track mileage in a physical mileage log, spreadsheet, digital mileage tracker, or other software. Your business mileage log should also note the date and work purpose of each trip.

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Then, at the end of the year, you simply multiply the number of miles driven by the standard mileage rate for the tax year. The resulting amount is the standard mileage deduction you can claim on your tax return.

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[# of miles] × [Standard mileage rate] = [Deduction]

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For example, let’s say your employees drove a total of 5,000 miles for work purposes over the course of the 2024 tax year. The calculation would look like this:

5,000 miles × $0.67 per mile = $3,350 deduction

What expenses does the standard mileage rate cover?

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

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• Fuel, including gasoline, electricity, and alternative fuels like ethanol
• Materials and supplies, including tires, oil, brake fluid, wiper fluid, and more
• Maintenance and repairs
• Vehicle depreciation
• Car washes and detailing
• Fees, including licensing and registration
• Insurance premiums
• Lease payments

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Claiming the actual expenses deduction

To use the actual expenses method, you’ll first need to determine the business use percentage of your vehicle. That requires 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 total mileage amount to arrive at your business use percentage:

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[Business miles] / [Total miles] = [Business use percentage]

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

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[Total vehicle expenses] × [Business use percentage] = [Deduction]

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For example, say you drove 8,000 miles over the course of the year, 2,000 of which were for business. You spent a total of $10,000 on vehicle expenses. Here’s how you’d find your deduction:

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

‍$10,000 total expenses × 25% business use = $2,500 deduction

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It’s important to note that whether you take the standard mileage deduction or the actual expenses deduction, you can’t deduct mileage for everyday commuting.

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

There’s no one 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 to use 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 for business over the course of the year.

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With the actual expenses method, you’ll need to track and document all the vehicle costs you and your employees incur each year, which can quickly get complicated. And if you’re missing proof of purchase receipts or service records, you might have to forego the write-offs you’re entitled to—or else risk penalties if the IRS ever audits your business.

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That being said, the actual expenses method may result in a larger 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 for business purposes. During the year, your actual costs totaled $6,000. The standard mileage rate method would result in a deduction of $670. But the actual expenses method would get you a deduction of $1,200—nearly twice as much.

Which method gives you the bigger tax write-off?

Whether the standard mileage method or the actual expenses method gives you the larger tax deduction depends on your business’s unique circumstances. Factors to consider include:

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• How many miles you drove for the year
• Whether you paid for any major repairs or maintenance
• How high your car or lease payments are
• Your car insurance premiums
• The cost of living in your area

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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 to determine your business expenses deduction. Some expense management software may be capable of calculating the deduction using both methods and telling you which method to use. 

Can I switch between the standard mileage rate and actual expenses method?

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

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But in order 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 later years, you’ll be free to choose whichever of the two methods you prefer.

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If you don’t use the standard mileage rate deduction in the first year that you claim business use of your vehicle, then you’ll 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 that you have an accurate way to track both mileage and business expenses. 

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Ramp’s comprehensive expense management software can help with both, giving you mileage tracking, recordkeeping, expense reporting, and more in a single platform:

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• 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 they submit a reimbursement request, protecting your business from the risks of a tax audit—especially if you claim actual expenses for business travel
• Automated expense reporting: With Ramp, you can manage your entire expense management and reimbursement program all in one place

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Ramp makes expense tracking easy. Watch a demo video and see why businesses that use Ramp save an average of 5% a year.