IRS Mileage Deduction: When Standard vs Actual Expenses Flip

IRS mileage deduction: Standard mileage vs actual expenses—when it “flips”

TL;DR Summary

• You can generally deduct business car use using either the standard mileage rate or actual expenses (if you qualify).
• The method that wins often depends on three inputs: annual business miles, vehicle cost (depreciation), and running costs (fuel, insurance, repairs, etc.).
• If you’re building a mileage-log series, this “break-even” guide pairs naturally with posts on mileage logs and substantiation.

For self-employed workers, freelancers, gig drivers and small-business owners, the IRS mileage deduction can be one of the biggest “quiet” write-offs of the year.

But there’s a recurring question that shows up every tax season: Should I use the standard mileage rate or actual expenses? The short answer is: it depends—because the best choice can flip based on how much you drive, what you drive, and what it costs to keep that vehicle on the road.

This explainer is general information only. Rules can change, and eligibility varies. When in doubt, confirm with IRS guidance or a qualified tax professional.

First, the basics: what each method is

Standard mileage rate

You multiply your business miles by the IRS standard mileage rate for that year. It’s popular because it’s simple and it bakes in typical operating costs (including an allowance for depreciation).

Reference point: The IRS lists the 2025 standard mileage rate for business use as 70 cents per mile. (Always check the IRS “Standard mileage rates” page for the latest year’s rate.)

Actual expenses

You total up your real vehicle costs and deduct the business-use percentage. Actual costs typically include items like gas, oil, repairs, tires, insurance, registration, and depreciation (or lease payments), then you apply the business-use share.

Key idea: Actual expenses can win when your vehicle is expensive to own/operate or when your costs spike—but it requires stronger records.

The 3 variables that usually decide the winner

Most “which method is better?” questions come down to these three inputs:

• Annual business miles (higher miles usually favour standard mileage)
• Vehicle cost / depreciation (higher vehicle cost may favour actual)
• Running costs (fuel, insurance, repairs, parking, tolls—higher costs may favour actual)

When the result “flips”: practical break-even thinking

Here’s a straightforward way to think about the break-even point, without pretending there’s one universal number:

Break-even concept (plain English)
Standard mileage wins when: miles × IRS rate is larger than your business share of actual costs.
Actual expenses win when: your business share of actual costs is larger than miles × IRS rate.

So what pushes you toward one method or the other?

Standard mileage tends to win when:

• You drive a lot for business and your vehicle is relatively efficient/reliable
• Your out-of-pocket running costs are stable and not unusually high
• You want a simpler recordkeeping workflow (still requires a mileage log)

Actual expenses tend to win when:

• Your vehicle has high ownership cost (depreciation/lease costs can be meaningful)
• Your fuel/insurance/repairs are unusually high for the year
• Your business-use percentage is high and well-documented

Scenario examples: where the method often changes

These are simplified examples to illustrate how the “flip” can happen. They’re not tax advice and they don’t include every rule or limitation.

Example A: High miles, modest vehicle costs (standard mileage often wins)

• Business miles: 18,000
• Vehicle: older, paid off, moderate running costs
• Standard mileage (using 2025’s 70¢ rate as a reference): 18,000 × $0.70 = $12,600
• Actual costs: if your business share of total costs is below $12,600, standard mileage is likely larger

Example B: Lower miles, high running costs (actual may win)

• Business miles: 6,000
• Vehicle: frequent repairs, high insurance, higher fuel spend
• Standard mileage reference: 6,000 × $0.70 = $4,200
• If your business share of total annual vehicle costs exceeds $4,200, actual expenses could be larger

Example C: Expensive vehicle with high depreciation/lease costs (actual may win)

• Business miles: 9,000
• Vehicle: newer, higher cost, higher depreciation/lease component
• Standard mileage reference: 9,000 × $0.70 = $6,300
• If depreciation/lease + other costs (business share) exceed $6,300, actual may win

Important rules that can lock in (or limit) your choice

Two rules trip people up repeatedly:

• First-year choice for owned vehicles: For a car you own, you generally need to choose the standard mileage rate in the first year the car is available for business use if you want to preserve flexibility later.
• Leased vehicles: If you use the standard mileage rate for a leased vehicle, you generally must use it for the entire lease period.

Because these rules can affect multiple tax years, many filers will run both methods on paper before locking in a strategy.

Records that matter: the “mileage log” tie-in

Whether you choose standard mileage or actual expenses, a clean mileage log is often what supports the business-use portion of the deduction.

If you’re building a series, this post naturally links to mileage-log guides like:

• How to keep a mileage log the IRS will accept (dates, destinations, business purpose)
• Best mileage log habits (weekly routine, separating commuting vs business)
• Audit-proof documentation (receipts, statements, and how to store them)

Quick checklist: run this before you pick a method

1. Total your business miles for the year (from your log).
2. Pull your total vehicle costs (fuel, insurance, repairs, registration, etc.).
3. Estimate business-use percentage (business miles ÷ total miles).
4. Calculate both methods side-by-side.
5. Check if any “first-year/lease” rules affect your ability to switch later.

Quick Q&A

• Q: Can W-2 employees still deduct unreimbursed business mileage?
  A: In many cases, unreimbursed employee expenses are not deductible on a federal return under current rules, with limited exceptions. Check IRS guidance for your specific situation.
• Q: Do I need receipts if I use the standard mileage rate?
  A: You typically still need a mileage log and may need records for certain add-ons (like parking and tolls, if applicable).

Disclaimer: This article is for general information only and is not tax advice. IRS rules and mileage rates can change, and individual situations vary. Check official IRS guidance or consult a qualified tax professional.

Helpful source pages: IRS standard mileage rates • IRS Topic 510: Business use of car • IRS Publication 463