In 2024, there will be a 1.5 cent increase per mile to the optional standard mileage rate that is used to determine the deductible cost of operating a vehicle for business purposes. The IRS recently announced that the cents-per-mile rate for using a car, van, pickup, or panel truck for commercial purposes will increase to 67 cents (from 65.5 cents for 2023). Along with cars powered by gasoline and diesel, these prices also apply to hybrid and electric vehicles.
The price of gasoline is around the same as it was a year ago, which is partially reflected in the increased tax deduction. According to AAA Gas Prices, the national average cost of a gallon of normal gas was $3.12 on December 21, 2023, down from $3.10 the previous year.
How to calculate standard business mileage rates for 2024
Every year, the business cents-per-mile rate is adjusted. It is based on a yearly study about the fixed and variable costs of operating a vehicle, such as gas, maintenance, repair, and depreciation that is commissioned by the IRS. The IRS occasionally adjusts the cents-per-mile rate midyear, as it did in 2022, if there is a significant change in the national average price of gasoline.
Standard Business Mileage Rate vs. Actual Expenses
In general, businesses are allowed to deduct the real costs associated with using vehicles for commercial purposes. Gas, oil, tires, insurance, repairs, licenses, and car registration payments all fall under this category. You can also request a depreciation allowance for the vehicle. Depreciation write-offs for vehicles, however, frequently have some restrictions that don’t apply to other kinds of business assets.
If you don’t want to keep track of actual vehicle-related expenses, the cents-per-mile rate is advantageous because you do not need to include all of your real expenses. However, you still must record certain information, such as the mileage for each business trip, the date and the destination.
Businesses that pay employees for using their personal vehicles for work purposes sometimes use the cents-per-mile rate. These payments may be able to draw in and keep workers who frequently use their personal vehicles for work-related functions. Why? Employee business expenditures, such as business mileage, are currently not allowed to be deducted on an individual’s income tax returns.
If you choose to use the cents-per-mile rate, bear in mind that there are a number of requirements. If you don’t comply, the reimbursements can be viewed by the recipients as taxable wages.
Standard Business Mileage Rate Can’t Always be Used
The cents per mile rate may not be applicable in some circumstances. It partially relies on how you’ve previously claimed deductions for the same car. In other cases, it depends on whether you want to take advantage of certain first-year depreciation tax breaks on the vehicle or if the vehicle is new to your business this year.
As you can see, there are a lot of things to think about when considering whether to deduct vehicle expenses using the standard business mileage rate for 2024. If you have any questions about keeping track of and deducting such costs in 2024, or deducting 2023 costs on your 2023 income tax return, we can help.
Updated January 2024.