‍

Drive More, Deduct More: What the 2025 Mileage Rate Increase Means for Your Business

‍

The Internal Revenue Service (IRS) recently announced a 3-cent increase in the standard mileage rate for business use in 2025. Beginning January 1, 2025, the rate will rise from 67 cents to 70 cents per mile. While this may seem like a small adjustment, the implications for businesses, employees, and self-employed individuals could be significant. Here's what you need to know and how to adapt to this change.

‍

What Are IRS Standard Mileage Rates?

‍

The IRS standard mileage rates are guidelines for calculating deductible vehicle costs for specific purposes. These rates are based on the costs of operating a vehicle, including fuel, maintenance, and depreciation. The 2025 rates are as follows:

‍

• 70 cents per mile for business use (up 3 cents from 2024).

• 21 cents per mile for medical or moving purposes (unchanged).

• 14 cents per mile for charitable purposes (set by statute).

‍

For business owners and self-employed individuals, these rates simplify the process of calculating vehicle expenses, offering an IRS-compliant alternative to tracking actual costs for every trip.

‍

Why the Mileage Rate Matters

‍

Mileage rates reflect the ongoing costs of vehicle operation. With inflation affecting fuel prices, maintenance, and vehicle depreciation, the increase to 70 cents per mile for business use in 2025 acknowledges the financial reality of driving in today’s economy. For businesses, this rate serves as a benchmark for reimbursing employees fairly and maintaining IRS compliance, while also managing costs effectively.

‍

Implications of the Rate Increase

‍

For Businesses with Fleets

‍

Companies operating fleets of vehicles may see the rate increase as a reflection of rising costs, even though the IRS mileage rate doesn’t directly apply to fleet operations. Gas prices, vehicle depreciation, and maintenance costs are all growing expenses. This could prompt businesses to reconsider the cost-effectiveness of fleet ownership.

‍

Considerations:

• Evaluate whether transitioning from company-owned vehicles to a reimbursement model might reduce costs.

• Explore mixed approaches combining fleet use and employee reimbursements.

• Leverage telematics systems to better monitor vehicle usage and reduce unnecessary expenses.

‍

For Mileage Reimbursement Programs

‍

Businesses reimbursing employees for business-related travel in personal vehicles will need to adjust policies to reflect the updated rate. A failure to do so could lead to:

‍

• Employee dissatisfaction due to inadequate reimbursement.
• Non-compliance with IRS guidelines, which could result in tax issues.

‍

Action Steps:

• Update reimbursement policies to reflect the new 70 cents-per-mile rate.
• Review budgets to account for the 4.5% increase in reimbursement costs.
• Utilize mileage tracking apps to streamline recordkeeping and ensure accuracy.

‍

The FAVR Alternative

‍

Fixed and Variable Rate (FAVR) reimbursement programs offer a tailored approach, reimbursing employees based on both fixed costs (like insurance) and variable costs (like fuel). The 2025 rate increase highlights the benefits of FAVR programs:

‍

• They align reimbursements more closely with actual expenses.
• They help prevent overpayments while ensuring tax-free benefits for employees.

‍

Recommendation:

Evaluate whether transitioning to a FAVR program could save your business money while improving compliance and employee satisfaction.

‍

Broader Applications

‍

For Nonprofits and Charitable Organizations

‍

While the mileage rate for charitable purposes remains 14 cents per mile, organizations should still:

‍

• Ensure accurate tracking of volunteer and staff mileage.

• Communicate reimbursement policies clearly to avoid confusion.

• Highlight the benefit of mileage deductions for donors or volunteers using their vehicles for charitable work.

‍

For Individuals

‍

Taxpayers using vehicles for medical or charitable purposes can use these rates to calculate deductions. Maintaining accurate mileage logs is essential to ensure compliance and maximize deductions. For example:

‍

• Medical travel: Keep records of doctor visits or medical treatments to claim deductions.

• Charitable work: Document travel for volunteering to enhance your tax return.

‍

Steps to Adapt to the Mileage Rate Increase

‍

1. Review Your Current Policies

‍

Audit your mileage reimbursement policies to ensure they reflect the updated 70 cents-per-mile rate. Adjust budgets accordingly to accommodate the increased costs. Work with your finance team to forecast the impact of these changes.

‍

2. Consider Transitioning to FAVR

‍

If your business has high mileage reimbursement expenses, a FAVR program could offer cost savings and better alignment with actual expenses. Research implementation options and consult with a tax professional if needed. Additionally, explore technology solutions to automate FAVR reimbursement calculations.

‍

3. Evaluate Fleet Expenses

‍

Reassess the cost-effectiveness of maintaining company-owned vehicles. Compare expenses with potential savings from transitioning to reimbursement models. Consider factors such as:

‍

• The age and efficiency of current vehicles.

• Rising fuel costs and how they impact operational budgets.

• Potential savings from reducing fleet size or leasing newer, more fuel-efficient vehicles.

‍

4. Communicate With Employees

‍

Transparency is key. Notify employees about the changes to mileage reimbursement policies, including:

‍

• Updated rates.

• Instructions for logging mileage accurately.

• Tips for maximizing tax-free reimbursement benefits.

‍

Create an internal FAQ or host a meeting to address common questions about the new policies.

‍

5. Leverage Technology

‍

Implement mileage tracking and reimbursement software to streamline the process. These tools can help:

‍

• Automate mileage calculations based on the updated IRS rates.

• Ensure compliance with IRS guidelines.

• Save time for both employees and administrators.

‍

FAQs

‍

How is the IRS mileage rate determined?

The IRS calculates the mileage rate based on the average costs of operating a vehicle, including fuel, maintenance, and depreciation.

‍

Can I deduct mileage if my employer reimburses me?

No, if your employer reimburses you at or above the IRS standard mileage rate, you cannot claim additional deductions.

‍

What records do I need to keep for mileage deductions?

You should maintain a detailed log of your trips, including dates, destinations, purposes, and the miles driven.

‍

Are there alternatives to using the standard mileage rate?

Yes, you can choose to deduct actual vehicle expenses instead of using the standard mileage rate. This requires keeping detailed records of all vehicle-related costs.

‍

Does the IRS mileage rate apply to electric vehicles (EVs)?

Yes, the IRS mileage rate applies to all vehicles, including EVs. However, actual operating costs may vary.

‍

Resources and Tips

‍

Resources

‍

Mileage Tracking Apps: Tools like MileIQ and TripLog can simplify tracking and ensure compliance.

IRS Guidelines: Visit the IRS official website for the latest updates and detailed guidelines on mileage deductions.

Tax Professionals: Consult a tax advisor to understand how mileage rate changes impact your specific situation.

Fleet Management Tools: Explore systems like Fleetio or Geotab to optimize fleet operations.

‍

Tips for Maximizing Benefits

‍

• Stay Organized: Keep receipts and logs updated to avoid scrambling during tax season.

• Educate Employees: Provide training on how to record mileage correctly and use reimbursement tools effectively.

• Review Annually: Reassess your policies and tools each year to ensure they align with IRS updates and your business needs.

• Bundle Trips: Plan trips efficiently to reduce unnecessary mileage and save on costs.

• Consider Fuel-Efficient Vehicles: Encourage employees to use or transition to fuel-efficient or electric vehicles to offset rising costs.

‍

Final Thoughts

‍

The 2025 mileage rate increase underscores the rising costs of vehicle operation. For businesses, it’s both a challenge and an opportunity to optimize reimbursement policies, explore alternative programs, and ensure compliance with IRS guidelines. By taking proactive steps now, you can minimize disruptions, maintain employee satisfaction, and keep your operations running smoothly.

‍

For individuals, understanding the updated rates can help maximize tax deductions and ensure compliance during tax season. As driving costs continue to evolve, staying informed is essential for both personal and business financial planning.

‍

Stay informed and adapt—after all, every mile counts!

‍

I hope this information was helpful! If you have any questions, feel free to reach out to us here. I’d be happy to chat with you. 

‍

Vincere Tax can help you with the tax implications of business taxes, stocks, bonds, ETFs, cryptocurrency, rental property income, and other investments. 

‍

Being audited is comparable to being struck by lightning. You don't want to practice pole vaulting in a thunderstorm just because it's unlikely. Making sure your books are accurate and your taxes are filed on time is one of the best ways to keep your head down during tax season. Check out Vincere's take on tax season!

‍

‍

‍Friends don’t let friends do their own taxes. Share this article! 

This post is just for informational purposes and is not meant to be legal, business, or tax advice. Regarding the matters discussed in this post, each individual should consult his or her own attorney, business advisor, or tax advisor. Vincere accepts no responsibility for actions taken in reliance on the information contained in this document.