New Year, New Mileage Rate: What You Need to Know
As we welcome 2025, the Internal Revenue Service (IRS) has announced a slight increase in the standard mileage rate for business use. Starting January 1, the optional mileage rate for automobiles driven for business will rise to 70 cents per mile, a 3-cent increase from 2024.
Understanding the IRS Standard Mileage Rate
This rate serves as a benchmark for the federal government and many businesses to reimburse employees for out-of-pocket mileage expenses. It applies to all types of vehicles, including fully electric, hybrid, gasoline, and diesel-powered cars. However, it’s essential to note that if your employer doesn’t reimburse your mileage, you cannot claim an itemized deduction for unreimbursed employee travel expenses.
Changes Under the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act of 2017, which remains in effect through 2025, eliminated the ability to claim an itemized deduction for unreimbursed employee travel expenses. This means that if your employer doesn’t reimburse your mileage, you’re no longer eligible for a tax break.
Other Mileage Rates Remain Unchanged
While the business standard mileage rate is increasing, other rates will remain the same in 2025. The standard mileage rate for medical purposes will stay at 21 cents per mile, as will the rate for moving purposes for qualified active-duty members of the Armed Forces. The mileage rate used when driving in service of charitable organizations will also remain at 14 cents per mile.
Claiming Mileage Deductions
Many drivers don’t claim the mileage deduction on their federal income tax returns, especially if they’re reimbursed by their employer. However, self-employed individuals can claim business mileage on their tax return using the standard rate or the business portion of actual expenses. It’s crucial to keep in mind that you can only use one method for the same vehicle.
What This Means for You
If you’re filing 2024 returns in 2025, remember to use the 2024 rate for those returns, not the new IRS mileage rate for 2025. Self-employed taxpayers who file a Schedule C can use the standard rate to deduct expenses from mileage incurred while doing business. The IRS rate takes into account the cost of fuel, maintenance, and other expenses associated with driving for business.
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