As a small business owner, handling your own business taxes probably isn't your favorite pastime. Still, when it comes time to prepare your tax return, you'll want to take advantage of every deduction and credit available to you as a means of reducing your tax burden and possibly even getting a refund.
If you're a business owner who uses a vehicle to travel for work purposes, then you may be eligible to deduct certain mileage and vehicle expenses from your taxable income. Two of the most common methods available to you are the standard mileage deduction and the actual expenses deduction. With a better understanding of what these methods entail, as well as some of their pros and cons, you can determine which is best for your unique tax situation.
The standard mileage method involves using what is known as a standard mileage rate to calculate common expenses related to using a personal vehicle for business purposes. This standard rate, which is adjusted and set by the Internal Revenue Service (IRS) annually, takes such expenses into account as fuel, maintenance, depreciation, registration fees and insurance into a uniform per-mile amount.
For 2025, standard mileage rates for self-employed workers and business owners total 70 cents per mile driven. This means that if you drive a total of 1,000 miles for business purposes in the previous tax year, you could claim a deduction of $700.
Another option available to you when it comes to claiming expenses related to using your personal vehicle for business is the actual expenses method. This more detailed approach involves manually calculating eligible costs related to fuel, repairs, insurance, registration fees, depreciation and other operating expenses in order to claim a deduction.
As you can probably imagine, this method is a bit more complex and time-consuming because it requires much more detailed record-keeping and careful calculation—especially when you take into consideration that only business-related vehicle expenses can be deducted. Still, it can be a suitable option for those who have vehicles with higher depreciation or fuel costs.
Ultimately, there's no one-size-fits-all answer to the question of whether you should take the actual expense or standard mileage approach when deducting vehicle-related expenses from your taxable income. You'll need to carefully consider your own unique situation, as well as the expenses related to operating your own vehicle, to determine which option is right for you.
In general, if you're looking for the quickest and simplest approach to deducting these expenses from your income, then the standard mileage deduction will be your best bet. With this method, you only need to know how many miles you drove for business in the previous tax year. From there, you can simply multiply that number by the standard mileage deduction amount (which is 0.70 for 2025) to get your final figure.
On the other hand, if you drive a vehicle that has high depreciation costs (such as a leased vehicle), high insurance costs or high fuel costs, then it may make more sense to take the actual expenses approach. Of course, this approach will require you to keep more detailed records of all your expenses related to operating and owning your vehicle. In addition to tracking the number of miles you've driven for business purposes, you may also need to carefully track your insurance costs, repair/maintenance expenses, fuel costs and more.
It is also worth noting that if you select the actual expenses approach, you won't be able to switch to the standard mileage method later on. With this in mind, you should be absolutely sure of your choice before moving forward.
The standard mileage approach and the actual expenses method are two viable options for deducting eligible expenses from your taxable income. And while both options come with their inherent benefits and possible drawbacks, choosing the right approach can save you a lot of money and hassle down the road.
Still not sure which approach is best for your tax situation? Consulting with an experienced tax advisor can be a great way to receive the personalized guidance you need as you prepare to file your taxes. A tax advisor can also help you with other aspects of your tax preparation while making sure you're not leaving any of your hard-earned money on the table.
If you have any questions or would like additional information, please contact our tax professionals.