People who use their personal cars for work will be able to claim a bigger tax break in the new year. The Internal Revenue Service has announced that the standard mileage rate for business driving is going up.
Starting January 1, drivers can deduct 2.5 cents more per mile for business use than before. At the same time, the deduction for vehicles used for medical purposes will drop slightly by half a cent. The IRS said these changes suggest updated cost data and yearly inflation adjustments.
What the mileage rate is all about
The standard mileage rate is a set amount decided by the IRS. It lets taxpayers calculate how much it costs to use their own vehicle for certain purposes when filing federal taxes. Instead of tracking every expense, people can multiply their miles driven by the IRS rate and claim that amount as a deduction.
This option is commonly used by self-employed workers, gig workers, freelancers, and small business owners who rely on their personal vehicles for work. The IRS also sets mileage rates for medical travel, moving purposes for some active-duty military members, and charity work.
New rates take effect in January
From January 1, the standard mileage rate for business use will be 72.5 cents per mile. That applies to cars, vans, pickup trucks, and panel trucks.
For medical travel, the rate will be 20.5 cents per mile. The same rate applies to moving expenses, but only for certain active-duty members of the Armed Forces and some members of the intelligence community. Mileage driven for charitable organisations will stay the same at 14 cents per mile.
The IRS said these rates apply to all types of vehicles, including fully electric cars, hybrids, and vehicles that run on gasoline or diesel.
Rules for leased vehicles
There is a specific rule for people who lease their cars. If a taxpayer chooses to use the standard mileage rate for a leased vehicle, they must continue using that method for the entire lease period. This rule also applies if the lease is renewed later.
In its updated announcement, the IRS also reminded taxpayers that using the standard mileage rate is optional. Drivers can choose instead to deduct the actual cost of using their vehicle. That method involves tracking expenses like fuel, oil changes, and basic maintenance. For medical and moving purposes, the mileage rate is based only on costs that rise when you drive more, such as gas and routine upkeep.
Meanwhile, with fuel prices, maintenance costs, and inflation still hitting drivers, the higher business mileage rate is expected to offer some relief to people who rely on their cars to earn a living.
Big IRS changes coming for next tax season
The Internal Revenue Service is rolling out several changes that will affect how most Americans file their taxes in the coming years. The biggest update is a higher standard deduction, which is used by more than 90 percent of taxpayers.
For individual filers, the standard deduction will rise to $15,750, up from $14,600 in 2024. Married couples who file jointly will see their deduction increase to $31,500, compared with $29,200 earlier.
Americans aged 65 and older will be able to deduct an additional $6,000 from their taxable income. This benefit applies to tax years from 2025 through 2028. However, the extra deduction begins to phase out for people whose adjusted gross income is above $75,000. Some states and Washington DC have chosen not to follow this rule. In those places, residents will not receive the extra benefit, as local governments plan to use the money for other programs, including the Child Tax Credit.
The IRS has also confirmed planned changes — “no tax on tips” and “no tax on overtime.” Under the proposal, workers could deduct up to $25,000 in qualifying tips from their taxable income through 2028.
The IRS is encouraging taxpayers to prepare early for the upcoming filing season. People are advised to check their online IRS accounts and gather key documents in advance. This includes W-2 forms, 1099s, bank records, and information related to digital assets.