If your business relies on driving - whether for sales calls, deliveries, or service visits - you’ve probably noticed that fuel costs can add up fast. Even small shifts in gas prices can have a real impact, which is why the IRS updates the standard business mileage rate each year.
The 2025 rate is now in effect, and while a few cents per mile might not seem like much, the change can influence tax deductions, reimbursements, and overall travel expenses in ways that are worth paying attention to.
Why the mileage rate changes
The IRS doesn’t set the mileage rate based on gas prices alone, though that’s often the headline-grabber. Instead, it’s designed to approximate the full cost of owning and operating a vehicle for business use. That includes fuel, of course, but also wear and tear.
Each year, the IRS reviews data on these costs and adjusts the rate accordingly. If there’s a big enough change, like a sharp jump in gas prices, the agency can even issue a midyear update, though that doesn’t happen every year.
The 2025 mileage rate: a slight increase
For 2025, the standard business mileage rate is 70 cents per mile, up from 67 cents in 2024. That’s a 3-cent increase, reflecting the steady rise in vehicle-related costs.
While this might not seem dramatic, it adds up for businesses with employees who log thousands of miles each year. Companies with sales teams, service technicians, or delivery drivers may need to revisit budgets and reimbursement policies to account for the additional cost.
Standard mileage rate vs. actual expenses
Businesses have two main ways to deduct vehicle expenses: the standard mileage rate or actual expenses.
The standard rate is the simplest method. You just multiply business miles driven by the IRS rate, and you’re done. No need to track every gas fill-up, oil change, or repair - just keep a mileage log with dates, destinations, and purposes.
Actual expense deductions are much more detailed but may make more sense. Instead of using a per-mile rate, you add up all fuel, maintenance, insurance, and depreciation costs for the year and deduct the portion that applies to business use.
If you drive a lot but keep costs low (say, with a fuel-efficient car), the standard rate might be the better deal. But if your actual expenses exceed what the mileage rate would allow - think high repair costs, frequent maintenance, or expensive insurance - tracking every dollar spent could yield a bigger deduction.
Please note that the standard mileage rate isn’t available to every business. You can’t claim it if you’ve already taken a different depreciation method for the vehicle, you’re claiming certain first-year depreciation deductions (like Section 179), or the vehicle has been depreciated beyond IRS limits.
Considerations if you reimburse employees for mileage
If your business reimburses employees for driving their personal vehicles, using the IRS mileage rate is an easy way to keep payments tax-free.
Employees can’t deduct unreimbursed mileage on their own tax returns, so offering a mileage-based reimbursement keeps them from eating those costs themselves. But for it to stay non-taxable, employers need to follow IRS rules:
Have employees track and submit mileage records.
Reimburse based on actual business miles driven.
Pay at or below the IRS standard rate (anything above is considered taxable income).
A well-structured reimbursement policy isn’t just about compliance - it also helps attract and retain employees who drive for work.
Next steps
If your company relies on driving, now’s the time to review the new rate and estimate how it affects your costs, decide which deduction method to use, and ensure any employee reimbursement policies are structured correctly.
If you’re unsure which approach works best for your business or would like personalized guidance, please contact our office.