Standard Mileage Rate vs. Actual Expenses: Which Is Better?

If you have a vehicle that you use for your business, you may be able to deduct certain expenses on your taxes. You must meet certain requirements in order to take these write-offs and there are two methods to consider: the standard mileage rate or the actual vehicle expenses. Here's how both work so you can decide which is right for your business tax situation.

What Is the Standard Mileage Rate?

The first option for deducting driving expenses is to use the standard mileage rate. In this deduction, you will calculate the total miles driven and multiply it by the standard mileage rate.

The standard mileage rate changes per year. For the 2022 tax year, there were two standard mileage rates because of the high price of gas:

• January to June: 58.5 cents per mile
• July to December: 62.5 cents per mile

How To Calculate the Standard Mileage Rate

Let's say you drove 50 miles to and from your small business every month in 2022. If we use the standard deduction, the calculation looks like this:

50 miles x 58.5 cents x 6 months = 175.5

50 miles x 62.5 cents x 6 months = 187.5

175.5 + 187.5 = 363

You can deduct $363 from your business taxes for your business travel. This is based on the standard mileage rate.

Who Can Take Deductions Using the Standard Mileage Rate?

You can make deductions using the standard mileage rate if:

• You have used the standard mileage rate since you first leased or bought the car.
• You have leased a car and intend to use the standard mileage rate deduction for the entirety of the lease
• You use four vehicles or fewer in your daily business operations

You cannot use the standard mileage rate if:

• You have used the actual expense tax deduction and claimed the accelerated depreciation deduction in previous years
• You have claimed a Section 179 deduction on the vehicle

If you use the standard mileage rate you cannot deduct:

• Lease payments
• Depreciation
• Actual auto expenses

You can still deduct business-related expenses like:

• Parking fees and tolls
• Interest if you have a loan on the car
• Applicable registration fees and any taxes

What Is the Actual Expenses Method?

The other option available for deducting driving-related expenses is the actual expenses method. You can use this method if you are not able to use the standard mileage rate or if you simply choose not to. The actual expenses method requires you to total up your car's expenses like gas, registration fees, parking fees, tolls, lease payments, and more (see below).

You must use the actual expenses method if:

• You have a fleet of vehicles (more than four) used simultaneously for your business activities
• You lease a car and do not plan on using the standard mileage rate for the entirety of the lease
• You used the actual expense calculation when your vehicle was first used for business purposes

What Are the Actual Expenses You Can Deduct?

When you use the actual expenses method to calculate your tax deduction for business travel on a car, you can add up and deduct the following expenses:

• Interest on a vehicle loan
• Vehicle depreciation (leased vehicles cannot be depreciated)
• Registration fees and tax
• Parking fees and tolls
• Garage rent
• Lease payments
• Insurance
• Gasoline
• Oil
• Maintenance
• Repairs
• Insurance
• Tires
• License plates
• Registration fees

How Much Can You Deduct With the Actual Expenses Method?

You can only deduct the portion of the expenses that was used for business. So if 60% of your driving was for business, you can deduct 60% of the expenses.

How To Calculate the Actual Expenses Deduction

Let's say you drove 10,000 miles in 2022, but only 6,000 were for business. That's 60% of the miles driven for the year. Your actual car expenses for all 10,000 miles in 2022 were $3,000.

The calculation would look like this:

60% x $3,000 = $1800

You could deduct $1,800 from your business taxes.

Standard Mileage Rate vs. Actual Expenses, Which Is Better?

The best method depends on a number of factors. It depends on the vehicle you drive and the operating costs of the vehicle.

If your vehicle gets great gas mileage, then taking the standard mileage deduction will likely be more beneficial for you. If your vehicle has very high operating costs and low gas mileage, then taking the actual expense deduction may produce better savings for you.

Frequently Asked Questions (FAQs)