Enter your details above to see which method saves you more money.
How Does the IRS Calculate Mileage Rate?
Every year, the IRS announces the standard mileage rates for business, charitable, medical, and moving purposes. But how is this number derived? It is not an arbitrary figure; rather, it is the result of a comprehensive annual study of the fixed and variable costs of operating an automobile.
The Formula Behind the Rate
To determine the standard business mileage rate (e.g., 67 cents per mile for 2024), the IRS works with an independent contractor to analyze data across the country. The calculation involves summing up two primary categories of vehicle costs:
Variable Costs: These are costs that fluctuate based on how much you drive. They include the cost of gasoline, oil, tires, and routine maintenance/repairs.
Fixed Costs: These are costs that exist regardless of mileage but are amortized over the life of the vehicle. They include insurance, registration fees, license fees, and arguably the most significant factor—depreciation (or lease payments).
By aggregating this data nationwide, the IRS sets a "cent-per-mile" rate that represents the average cost to own and operate a vehicle in the United States. This allows taxpayers to deduct vehicle expenses without keeping a shoebox full of receipts for every gas station visit.
Standard Mileage vs. Actual Expenses
Taxpayers generally have two options when claiming a vehicle deduction: the Standard Mileage Method and the Actual Expenses Method.
1. Standard Mileage Method
This is the simplified method where you multiply your business miles by the IRS rate. For example, if you drove 10,000 business miles in 2024:
10,000 miles × $0.67 = $6,700 Deduction
Note that you can still deduct parking fees and tolls separately, as these are not included in the standard rate.
2. Actual Expenses Method
This method requires you to track every dollar spent on your car (gas, insurance, repairs, depreciation) and the total number of miles driven for the year. You then calculate the percentage of business use vs. personal use.
For example, if you spent $10,000 on car expenses and used the car 60% for business:
$10,000 Total Expenses × 0.60 (60%) = $6,000 Deduction
Which Method is Better?
The best method depends on your specific vehicle and driving habits:
High Mileage, Low Operating Cost: Drivers of fuel-efficient cars (like hybrids) who drive many miles often benefit more from the Standard Mileage Rate. The wear-and-tear component of the standard rate often exceeds the actual money spent on gas and repairs.
Low Mileage, High Operating Cost: Drivers of expensive vehicles with high depreciation, high insurance premiums, or poor fuel economy may find a larger deduction using the Actual Expenses Method.
Use the calculator above to input your specific numbers and determine which IRS calculation method yields the highest tax deduction for your situation.