Vehicle expenses can be a significant cost for small businesses, especially for contractors and other home service companies who travel to their customers’ homes to meet with and/or perform services on-site.
As such, making the right decisions concerning how to expense the vehicles used in your operation affects how much you save at tax time.
What options are available to you?
Firstly, depending on the structure of your business and/or who owns the vehicle, you may not have a choice as to what options you can choose.
Let’s take a look at the possible scenarios:
Sole Proprietor and Single Member LLC (Filing with a Schedule C)
A sole proprietor or owner of a Single Member LLC who files a Schedule C has the option to choose either Standard Mileage Rate or Actual Expenses.
In this scenario, any employee working for you using their own personal vehicle for business purposes is typically reimbursed using the Standard Mileage Rate. This reimbursement is tax deductible for you and is not taxable to the employee.
Corporations, Partnerships & Multimember LLCs
Corporations have the choice to either use vehicles owned by the entity itself or use vehicles personally owned by employees or a shareholder (including yourself as the owner).
Note that even with vehicles owned by a corporation, only miles used specifically for business purposes are deductible. This means that if you drive 15,000 miles total in a year and only 13,500 of those miles are for business use, then only 90% (13,500 ÷ 15,000) of your actual expenses related to the use of that vehicle are deductible
This makes it critical to keep a detailed mileage log in order to determine the appropriate amount to expense for both Standard Mileage Rate and Actual Expenses.
Deciding Between Standard Mileage or Actual Expenses
If you meet one of the requirements mentioned above to where you have a choice of method, you will then need to decide which method will provide you with the greatest tax benefit.
The analysis that is needed to make this decision comes down to simple math.
Standard Mileage Deduction
The 2026 business rate is split at mid-year. For miles driven January 1 through June 30, 2026, the standard mileage rate is 72.5 cents per business mile (IRS Notice 2026-10, announced in IR-2025-128). For miles driven July 1 through December 31, 2026, it is 76 cents per business mile (IRS Announcement 2026-11, Internal Revenue Bulletin 2026-29, a fuel-price revision). Your mileage log has to show which half of the year each trip fell in. The IRS keeps the full table at Standard mileage rates.
Filing a prior year?
- 2025: 70 cents per business mile, the whole year (IRS Notice 2025-5, IR-2024-312)
- 2024: 67 cents per business mile, the whole year (IRS Notice 2024-8, IR-2023-239)
The standard mileage rate takes into account most of the costs related to business use of the vehicle like fuel, maintenance & repairs, wear & tear, etc. It also includes depreciation of the vehicle.
Business miles include travel related to the operation of your business such as traveling back and forth from your business location to meet with and/or perform services for customers, picking up materials or equipment, driving to purchase office supplies, etc.
Note that if you have a brick-and-mortar business location, travel to and from your home to this location will not be eligible for reimbursement as this is considered commuting rather than business travel.
On top of the mileage deduction itself, a self-employed owner can also deduct business-related parking fees and tolls, the business part of interest on the auto loan, and the business part of state and local personal property tax on the vehicle (IRS Publication 463, chapter 4, “Standard Mileage Rate”).
Important Note: If you think that it may be beneficial to use the Standard Mileage Rate method at any point throughout the use of the vehicle, then it’s required that you use the Standard Mileage method in the first year the vehicle is available for use in your business. After the first year, you can choose either method year by year (IRS Publication 463, “Choosing the standard mileage rate”). A leased vehicle on the standard rate must stay on it for the whole lease.
Actual Expenses
Actual Expenses are pretty straightforward and include items such as the following:
- Maintenance and repairs
- Gas and oil
- Tires
- Taxes and registration
- Interest on vehicle loans
- Licenses
- Car Insurance
- Rental or lease payments
- Parking fees and toll charges
- Depreciation
The efficiency of your vehicle and its type of usage will have a great impact on which of these two methods will provide you with the best tax deduction.
For example, suppose you haul heavy equipment that puts considerable wear and tear on your vehicle or you require a vehicle that gets lower than average gas mileage. In that case, actual expenses are more likely to provide a greater tax benefit.
Whereas a vehicle used for a lighter workload and that gets great gas mileage, standard mileage reimbursement will likely produce a more beneficial tax write-off.
Here’s how the math works
Let’s take a look at an example of someone who put 15,000 miles on their vehicle in a given tax year and 13,500 of those miles (90%) were used for business. Let’s also say that throughout the year they accumulate a combined total of $500 in toll & parking fees, auto loan interest, and personal property tax on the vehicle.
Assumption, stated plainly: because the 2026 rate changes on July 1, this example assumes the 13,500 business miles were driven evenly across the year — 6,750 miles in each half. Your own log decides the real split; if most of your miles fall in the second half, the standard-mileage figure comes out higher than shown here, and lower if they fall in the first half.
Using the Standard Mileage Deduction method for 2026: 6,750 miles x $0.725 = $4,893.75 for January–June, plus 6,750 miles x $0.76 = $5,130.00 for July–December, for a $10,023.75 mileage deduction. Add $450 (90% of $500) in additional deductions and the total is $10,473.75.
Let’s say that same person were to use the Actual Expenses method. And for the sake of simplicity let’s say that it is an older vehicle with no depreciation. And their expenses for fuel, maintenance, tires, tolls, parking fees, etc., come to a total of $8,000. Then they would take 90% of $8,000 which will provide a $7,200 tax writeoff.
In the above scenario, this person would have a $3,273.75 greater tax deduction using the standard mileage rate when compared to the Actual Expenses method.
The same example for a prior year, one rate all year: 2025 at 70 cents gives $9,450 + $450 = $9,900; 2024 at 67 cents gives $9,045 + $450 = $9,495.
Conclusion
This article is meant to be a general overview and is by no means an exhaustive list of all things to be considered.
As always, we advise that you consult with a tax professional who is familiar with your industry before making any such decision.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
