Don't Mess With Taxes

Photo by Tatyana Mazepova

It’s the holiday season, so many of us have travel on our minds. That includes the Internal Revenue Service.

AAA expects 2.5 million more people will be on the roads for the year-end holiday period, which is classifies as Saturday, Dec. 21 to Wednesday, Jan. 1, 2025. That comes to a total of 107 million people making a road trip of 50 miles or more, just shy of the record 108 million drivers in 2019.

But Uncle Sam’s tax collector isn’t narrowly focused on who is hitting the highways over the next few days. The IRS, as it typically does late every year, is taking a larger view of the potentially tax-deductible travel in all of the coming year.

The Internal Revenue Service announced yesterday, Dec. 19, in Notice 2025-05 that the standard optional mileage rate you can use in 2025 to claim eligible business vehicular travel will go to 70 cents per mile. That's a 3-cent increase over the 2024 mileage rate.

However, the other on-the-road tax travel rates for 2025 — for medical purposes, relocation of active-duty members of the Armed Forces, and charity-related trips — will remain the same as this year.

The table below shows those amounts for 2024, which you’ll use for calculations on the tax return you file next year, and for road travel in 2025.

   
The above rates for both tax years apply to cars, vans, pickups, or panel trucks, regardless of whether they are gasoline- or diesel-powered or electric or hybrid-electric vehicles.

Why the mileage rates differ: The mileage rate for trips in service of a nonprofit is set by statute, meaning that the 14-cents-per-mile calculation can only be changed by Congress. It’s been at that level since it was set as part of the Taxpayer Relief Act of 1997 (Public Law 105-34) that took effect in 1998.

The other rates for potentially deductible driving, however, generally reflect the way the economy and inflation are going, but not necessarily in straightforward ways. They are based on two different data sets, the fixed and the variable costs of operating a vehicle, which can be confusing and, for many drivers who depend on them, infuriating.

As explained in the aforementioned Notice 2025-05 (yes, the IRS is getting a jump on the New Year in its notice numbering), the IRS hires an independent contractor to calculate the mileage rates, aside from the charitable one that's set by law, and to evaluate the fixed and variable costs of operating a vehicle.

The biggest fixed automotive cost is the vehicle price. The biggest variable cost is gasoline. It's those different vehicular cost categories that account for the differences in the rates.

The business rate is determined using both the fixed and variable costs’ studies. The rate for medical and moving purposes is based only on the car's variable costs.

Since the business driving rate is based on both sets of vehicle costs, when it goes up, the amount tends to be more than the medical or moving categories. When the variable costs go down, such as when fuel prices drop, the medical and moving rates are reduced, too.

Business mileage deduction choice: Many business taxpayers use the optional standard rate when figuring how much in mileage costs they can claim. It's easy and just requires you to keep track of your work-related miles.

But note that you always have the option of calculating the actual cost of using your vehicle rather than using the standard mileage rates.

The mileage deduction choice, like every other tax decision, depends on your personal situation.

It’s generally a no-brainer to use the one that will give you more tax savings. Some filers, however, find convenience is more valuable, especially if the tax-saving difference is, from their perspective, negligible.

Make your choice wisely, especially if you're claiming the business mileage rates for the first time. The IRS points out that you can't use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. Yeah, that's a lot of IRS tax-speak for additional calculations you'll have to make here.

The upshot is that if you initially opt for the actual expenses method the first time you ever make a business mileage tax claim, you're stuck using that method for as long as you use that vehicle.

If, however, you choose the optional standard mileage rate when you first put a vehicle into business use, in later years you can choose to keep using the fixed-mile rate or switch to totaling your auto's actual expenses.

Note, too, that if you lease your business use vehicle, you must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

Tracking tax-related travels: The business miles can help you reduce taxes on your self-employment income. This obviously is a major write-off for those who are their own boss full-time. But the deduction also applies to gig jobs you have in addition to your wage paying main work.

Regardless of what your self-employment status is, or which deductible mileage method you use, don’t overlook documentation. You need to accurately record the number of miles you drive each year. Having the correct information on hand will save you and the IRS a lot of time and headaches if there’s ever a question about your business mileage claims.

You have a couple of ways to track this travel. You can keep complete and contemporaneous records of all your actual business-related auto usage (more on this in a minute) or you can claim the optional standard mileage amount in the above table.

No more miscellaneous mileage claims: What if you drive your car for work but you're an employee and not your own boss? Sorry, but those work-related miles as a wage-earning staffer aren't of any tax use, for now.

The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated, at least through the 2025 tax year, the miscellaneous itemized deduction on Schedule A where employees could claim unreimbursed business expenses, including the costs of operating an automobile in connection with their jobs.

Again, this affects only salaried workers who drive in connection with their jobs. In these cases, you need to talk with your employer about an adjusted compensation or reimbursement method.

However, the TCJA still allows Armed Forces reservists, qualifying state or local government officials, educators and performing artists to deduct unreimbursed business expenses under the TCJA. If any of these exemptions apply to you and you're still a bit confused, don't freak out. Your tax preparer, tax software, or IRS Tax Topic 510, Business Use of a Car, can help.

Moving expenses also limited by tax reform:  The TCJA’s exception for reservists’ business expense claims brings up another tax reform change that directly applies to one of the standard mileage rates the IRS just announced for 2025.

The 21-cents-per-mile write-off for moving in 2024 and 2025 mileage remains as an above-the-line tax deduction. But, again thanks to the TCJA, it’s only available (as referenced earlier) to active-duty U.S. military personnel who move pursuant to a military order related to a permanent change of station.

A medical mileage tax Rx: The TCJA also greatly increased the standard deduction amount (you can read about those 2025 increases in Part 2 of the annual inflation series), which means most taxpayers use that method instead of itemizing tax deductions on Schedule A.

However, some filers still find itemizing gives them a larger deduction. In many cases, that's because they have a lot of deductible medical expenses. Among those costs that count here is medical-related travel.

The 21 cents per mile rate for 2024 and 2025 include road trips to medical treatments (and, in some instances, medical conferences), as well as when you drive to the pharmacy to pick up your prescriptions. The IRS has a full (and ever changing/expanding) list of deductible medical expenses.

Charitable driving cheated: Some who choose to itemize also count on deductible charitable donations to increase their itemized tally. Those gifts to nonprofits can include miles driven in connection with services for and by an IRS-authorized charity.

Common charitable mileage claims include volunteer delivery of meals to the home-bound or providing transportation to individuals who are getting help from a qualified charity.

But, as noted earlier, this 14-cents-per-mile rate cannot be changed by the IRS in its annual mileage adjustments.

If you agree with me that it should be inflation adjusted, too, let your U.S. Representative and Senators know.

Exiting the inflation highway: Finally, and I mean that literally in connection with this post, this IRS' annual mileage rates notice technically isn't part of the agency's overall inflation adjustments that are put out in two major announcements, generally each fall.

But the mileage rate adjustments merge nicely into that changing tax amounts roadway. So each year it is the final, 10th post in the annual look at how inflation affects myriad parts of our taxes.

I know many of you are like the hubby, focused on getting to your destination as quickly as possible, especially since it means holiday festivities. I, on the other hand, enjoy the travel there. Whichever kind of traveler, tax or real life, you are, thanks for reading this final inflation series post and the other nine.

And if you're like my better half, thanks especially for your patience with the time it took to finish up the series!

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