In 2024, the optional standard mileage rate used to determine the deductible cost of operating a business automobile will increase by 1.5 cents per mile. According to the IRS, the cents-per-mile rate for business use of a car, van, pickup, or panel truck will be 67 cents (up from 65.5 cents in 2023).
The increased tax deduction reflects the current price of gasoline, which is almost the same as it was a year ago. According to AAA Gas Prices, the national average price of a gallon of regular gas on December 21, 2023, was $3.12, up from $3.10 a year earlier.
Standard Rate Vs. Tracking Expenses
Businesses can generally deduct the actual expenses incurred as a result of business vehicle use. Gas, tires, oil, repairs, insurance, licenses, and vehicle registration costs are some of the eligible expenses. You can also claim a depreciation allowance for the vehicle. However, in some cases, certain limits apply to car depreciation write-offs that do not 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 useful. But you must keep track of some details, such as the mileage for each work trip, the date, and the destination.
Businesses that reimburse employees for business use of their own vehicles also use the standard rate. These reimbursements may help with recruiting and retaining staff who use their personal vehicles for company purposes. Why? Employees cannot deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns under current law.
Keep in mind that if you use the cents-per-mile rate, you must follow certain rules. Employee reimbursements may be considered taxable wages if you do not comply.
Rate Calculation
The business cents-per-mile rate is adjusted annually. It’s based on an annual IRS analysis of the fixed and variable costs of owning a vehicle, such as gas, maintenance, repairs, and depreciation. If there is a significant fluctuation in average gas costs, the IRS may adjust the rate midyear.
Not Always Permitted
There are some situations in which you cannot use the cents-per-mile rate. In some cases, it is determined by how you previously claimed deductions for the same vehicle. In other cases, it depends on whether the vehicle is new to your company this year or whether you wish to take advantage of certain first-year depreciation tax breaks.
As you can see, there are numerous aspects to consider when determining whether to deduct business vehicle expenses using the standard mileage rate. If you have concerns regarding tracking and reporting these expenses in 2024 — or claiming 2023 expenses on your 2023 tax return — we can help.
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