Your Car Is a Tax Decision: Standard Mileage vs. Actual Expenses
Say you run a mobile pet-grooming van business, or you're a real estate agent driving to showings. You put 15,000 miles on the car this year. At tax time you ask, "What can I deduct for the car?" That's the wrong first question. The right one is: which method are you using, and did you pick it correctly the first year? Choose wrong and you can lock yourself out of the better option.
The two methods
Standard mileage rate. For 2025, the rate is 70 cents per mile. That single rate covers gas, oil, repairs, tires, insurance, registration, depreciation and more. Confirm the current figure at irs.gov. Publication 463's own example: 10,000 business miles at $0.70 is $7,000.
Actual expenses. You add up the real costs of operating the car (gas, repairs, insurance, registration, lease payments or depreciation) and deduct the business-use percentage. If you drive 80% of your miles for business, you deduct 80% of those costs.
Either way, you can deduct business parking fees and tolls on top. Parking at your own place of business doesn't count, because that's commuting.
A worked example
Say you drove 15,000 miles in 2025, and 12,000 were for business. That's 80%.
Standard mileage: 12,000 x $0.70 = $8,400
Actual expenses: gas $2,800, insurance $1,600, repairs $1,200, registration $300, depreciation $5,300 = $11,200 x 80% = $8,960
Here actual wins slightly. For an older car with low costs, the standard rate usually wins. For a new, expensive car, actual often wins in the early years. The only way to know is to run both, which means tracking real expenses even if you plan to use the standard rate.
The first-year rule that traps people
If you own the car and want the standard mileage rate, you must choose it in the first year the car is available for use in your business. Choose actual expenses in year one, and the standard rate is generally gone for that car for good. If you use the standard rate first, you can switch to actual expenses later.
Leased car. If you use the standard rate on a leased car, you must use it for the entire lease period.
No standard rate after accelerated depreciation. You can't use the standard rate if you used MACRS, claimed Section 179, or took special depreciation on the car.
Five or more cars. If you use five or more cars for business at the same time, you can't use the standard rate for any of them.
Basis reduction. The standard rate includes depreciation, so your car's basis goes down by the depreciation portion each year.
What isn't deductible
Commuting. Driving between home and your main or regular workplace is a personal expense, no matter how far it is. Driving from your office to a client site, or between job sites, is business. Trips from home can be treated differently when your home is your principal place of business, so read the commuting section of Publication 463 before you assume.
The mileage log
Publication 463's sample log tracks the date, destination, business purpose, odometer readings, miles, and expenses such as gas and tolls. Log it as you go. A log rebuilt in April is the log that loses in an audit. Apps work fine, as long as they capture those fields.
What most owners miss
The first year you use a car in your business decides what's available later. Think before you start using it.
If you take the standard rate, you still get parking and tolls on top.
For leased cars, the standard rate locks in for the whole lease.
Tracking actual costs even when you use mileage lets you compare the two methods every year.
Track every business mile from day one, and pick your car method on purpose in the first year.
Adapted from my book, The Small Business Tax Code, Unlocked. Sources: IRS Publication 463; IRS standard mileage rates. General information, not advice for your specific situation.
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