If you use a vehicle for business, you are entitled to deduct those costs. What most people do not realize is that the IRS gives you a choice in how you calculate that deduction, and choosing the wrong method can mean leaving a significant amount of money on the table.
Here is what you need to know for 2026.
The 2026 Standard Mileage Rate
On December 29, 2025, the IRS announced the updated standard mileage rate for business use. Beginning January 1, 2026, the rate is 72.5 cents per mile, up 2.5 cents from the 2025 rate of 70 cents per mile. The increase reflects continued rises in vehicle operating costs, including fuel prices, insurance premiums, maintenance, and depreciation.
For reference, here are all three 2026 rates:
| Purpose | 2026 Rate | Change from 2025 |
| Business use | 72.5 cents/mile | +2.5 cents |
| Medical/moving (qualified military) | 20.5 cents/mile | -0.5 cents |
| Charitable use | 14 cents/mile | No change |
The business rate is the one that applies to the vast majority of self-employed individuals and small business owners.
Method One: The Standard Mileage Rate
The standard mileage method is exactly what it sounds like. You track every mile driven for qualified business purposes, multiply that number by 72.5 cents, and that total is your deduction. No gas receipts. No maintenance records. No insurance statements.
The simplicity is the appeal. But the standard rate is designed to represent the average cost of operating an average vehicle. If your actual vehicle costs happen to be lower than that average, you may come out ahead using this method even without doing anything complicated.
Example: If you drive 12,000 business miles in 2026, your deduction is 12,000 x $0.725 = $8,700.
One important note: even when using the standard mileage method, you can still separately deduct business-related parking fees and tolls. If you finance your vehicle, the business-use portion of your loan interest may also remain deductible. These items are not absorbed into the per-mile rate.
Method Two: Actual Expenses
The actual expense method requires tracking every dollar you spend operating your vehicle during the year and then applying the percentage of miles driven for business to determine your deduction. Deductible expenses include:
- Gasoline
- Insurance
- Repairs and maintenance
- Registration fees
- Depreciation (or lease payments)
- Tires
- Car washes used to maintain a business vehicle
If your vehicle is used 60% for business and 40% for personal purposes, you deduct 60% of each of those expenses.
This method demands more documentation but can produce a larger deduction in certain situations, particularly for owners of expensive or high-maintenance vehicles, or those who drive relatively fewer miles but have significant fixed vehicle costs.
Which Method Produces a Larger Deduction?
There is no universal answer. The right choice depends on your specific vehicle and driving patterns. As a general rule:
Standard mileage tends to work better when:
- You drive a fuel-efficient or lower-cost vehicle
- Your annual business mileage is high (generally above 15,000 miles)
- You prefer minimal recordkeeping
- Your vehicle is older and fully paid off, meaning depreciation is not a major factor
Actual expenses tend to work better when:
- You drive a high-cost, luxury, or specialty vehicle
- Your vehicle has high insurance or maintenance costs
- Your annual business mileage is relatively low
- You have significant depreciation to claim, particularly in the early years of ownership
The only reliable way to know which method gives you the better result in a given year is to calculate both and compare them. That extra step is worth doing.
A Critical Rule About Switching Methods
The IRS has specific restrictions on switching between methods, and this is where many business owners get caught.
If you use the standard mileage rate in the first year a vehicle is placed in business service, you are generally free to switch to actual expenses in future years (though depreciation calculations become more complex). However, if you start with actual expenses in the first year, you are typically locked into that method for the life of that vehicle.
For leased vehicles, the restriction is stricter: if you choose the standard mileage rate for a leased vehicle, you must continue using it for the entire lease period, including any renewals.
This makes your first-year decision more consequential than most people realize. If you are unsure which method to use when you first put a vehicle into business service, starting with the standard mileage rate preserves your flexibility.
What Counts as a Business Mile (and What Does Not)
This is where many taxpayers create problems for themselves without knowing it. The IRS makes clear distinctions between business mileage, commuting mileage, and personal mileage.
Deductible business miles include:
- Driving to meet clients or prospects
- Travel between job sites or business locations
- Trips to suppliers, vendors, or the bank for business purposes
- Travel to a temporary work location
- Business-related errands during the workday
Not deductible:
- Your regular commute from home to your primary workplace, even if you take calls or handle business matters during the drive
- Personal errands, even if they happen on a business day
- Mixed-use trips where you detour for personal reasons (only the business portion qualifies)
One important exception applies to home-based businesses. If your home qualifies as your principal place of business, travel from your home to client locations and other business destinations is generally deductible. This is a legitimate advantage for sole proprietors who work from home, but the home office designation must be legitimate and documented. You can learn more about how Yarborough & Potter works with sole proprietorships and their specific tax situations.
The Recordkeeping Requirement
Neither method eliminates the need for documentation. The IRS requires a contemporaneous mileage log, meaning records created at or near the time of each trip, not reconstructed at the end of the year from memory. A log assembled in March to support a deduction claimed for the prior January will not hold up under audit scrutiny.
Per IRS Publication 463, a complete mileage log must capture four elements for every business trip:
- The date of the trip
- The destination (city or business name)
- The business purpose of the trip
- The number of miles driven
You should also record your vehicle’s odometer reading at the beginning and end of each year. Mileage tracking apps that run in the background of a smartphone make this straightforward and produce IRS-compliant reports automatically.
Working with a Tax Professional
The mileage deduction sounds simple on the surface, but the method election, the switching rules, the treatment of mixed-use vehicles, and the documentation requirements all carry real risk if handled incorrectly. Business owners who take vehicle deductions and face an IRS audit frequently find that mileage is one of the first areas examined.
If you are unsure whether you are using the right method, whether your records are sufficient, or whether your vehicle deduction is being handled correctly as part of your overall small business tax return, contact Yarborough & Potter for a free consultation. We help business owners throughout the Carolinas make sure every legitimate deduction is claimed correctly and every record is where it needs to be.
