When it comes to deducting car expenses for business use, the IRS gives you two main options: the Actual Expense Method or the Standard Mileage Rate. Choosing the right one can make a noticeable difference in your tax savings. Here’s a breakdown of both to help you decide which is best for your situation.
1. The Actual Expense Method
With this method, you deduct the actual costs of operating your vehicle for business, including:
- Gas
- Oil
- Maintenance and repairs
- Tires
- Insurance
- Registration fees
- Depreciation (or lease payments)
You’ll need to keep detailed records and receipts for each expense. Then, you calculate what percentage of your vehicle’s use was for business and apply that percentage to the total costs.
Best for:
- High-cost vehicles
- Businesses with heavy vehicle usage
- Owners who already track detailed expenses
Pros:
✔ Potentially larger deductions, especially for newer or expensive vehicles
✔ Covers a wide range of vehicle-related expenses
Cons:
✘ Requires detailed recordkeeping and receipts
✘ More complex to calculate and maintain
2. The Standard Mileage Method
With this simpler option, you multiply the number of qualified business miles driven by the IRS’s standard mileage rate. For 2025, the standard mileage rate is 70 cents per mile (check with your accountant for the latest figure).
Best for:
- Lower-cost vehicles
- Minimal vehicle expenses
- Sole proprietors or small business owners who want simplicity
Pros:
✔ Easy to calculate — just track your miles
✔ No need to save receipts for gas, maintenance, etc.
✔ Saves time and paperwork
Cons:
✘ May yield a smaller deduction than actual expenses
✘ Doesn’t account for costs like depreciation or insurance
Which Method Should You Choose?
It depends on your specific situation. Here’s a quick guide:
| Scenario | Recommended Method |
|---|---|
| You drive an older, inexpensive vehicle | Standard Mileage |
| You lease or bought a new, high-value car | Actual Expense |
| You prefer simplicity over maximizing deductions | Standard Mileage |
| You’re willing to track everything for a bigger potential write-off | Actual Expense |
Important Tip:
Once you choose the actual expense method for a vehicle, you generally can’t switch to the standard mileage method for that same vehicle in future years. So choose carefully!
Final Thoughts
Tracking your vehicle expenses properly can help you save a significant amount come tax time. If you’re unsure which method works best for your situation, don’t guess — reach out for professional guidance. At Kurpas Financial, we’ll help you evaluate your options and make sure you’re getting the maximum deduction for your business mileage.
Need help with mileage tracking or car-related deductions? Let’s talk. 🚗📊