The IRS has announced an increase in the optional standard mileage rate for automobiles used for business purposes starting January 1, 2025. This rate will rise by 3 cents to 70 cents per mile. Rates for other purposes, such as charitable, medical, and moving expenses, will remain unchanged from 2024.
Updated 2025 Standard Mileage Rates:
Business use: 70 cents per mile (up from 67 cents in 2024)
Medical and moving purposes: 21 cents per mile (unchanged)
Charitable purposes: 14 cents per mile (unchanged, as set by statute)
These rates apply to all vehicle types, including fully electric, hybrid, gasoline, and diesel-powered vehicles.
Key Points:
Tax-Free Reimbursements: Using the standard mileage rate allows for tax-free reimbursements when paid by employers, under IRS Revenue Procedure 2010-51.
Calculation Alternatives: Taxpayers can opt to use the standard mileage rate or calculate actual vehicle operating costs.
Requirements for Usage:
For owned vehicles, taxpayers must use the standard mileage rate in the first year of business use but can switch methods in subsequent years.
For leased vehicles, the standard mileage rate must be used for the entire lease term, including renewals.
Additional Notes:
The standard mileage rate for business is based on fixed and variable costs, including depreciation, insurance, and fuel, while rates for medical and moving purposes only consider variable costs.
Under the Tax Cuts and Jobs Act, only active-duty military members can deduct moving expenses, and miscellaneous deductions for unreimbursed employee travel expenses are no longer allowed.
Reference:
Notice 2025-05 provides further details, including depreciation rates, fixed and variable rate plan allowances, and valuation rules for employer-provided vehicles.
Taxpayers and employers should review these updates to ensure compliance and optimize tax deductions or reimbursements related to vehicle use.
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