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January 5, 2026

2026 Mileage Rates: What Small Businesses Need to Know

Every year, the Internal Revenue Service (IRS) updates the standard mileage rates, reflecting adjustments for inflation. For 2026, these rates have been newly announced, impacting how small businesses can calculate their deductible automobile expenses when driving for business, charitable, medical, or moving purposes.

Effective January 1, 2026, the IRS has set the following mileage rates for the use of a car, van, pickup, or panel truck:

Business Mileage: 72.5 cents per mile, which includes a 35-cent-per-mile allocation for depreciation, marking an increase from the 70 cents per mile in 2025.
Medical and Certain Moving Purposes: 20.5 cents per mile, a slight decrease from the 21 cents per mile set in 2025.
Charitable Activities: 14 cents per mile, a rate that remains unchanged and is set by statute.

The business mileage rate is derived from a comprehensive annual study taking into account both fixed and variable costs of automobile operation. In contrast, the medical and moving mileage rate considers only variable costs. The charitable mileage allowance has remained at 14 cents for over 25 years, as it is legally defined and cannot change without legislative intervention.

It’s noteworthy that OBBBA reforms excluded moving-related mileage deductions except for Armed Forces members and intelligence community members moving due to job-related relocations. For taxpayers working with charitable organizations, rather than using the 14 cents per mile method, direct out-of-pocket expenses such as gas and oil can be deducted. However, items like general repairs, maintenance, and insurance premiums are not deductible.

Key Considerations for Vehicle Business Use: Owners always have the alternative of calculating the actual costs associated with vehicle use. Fluctuating fuel prices and depreciation incentives can influence the choice to use actual expenses, particularly with changes in bonus depreciation rates which will return to 100% for the later part of 2025.

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However, note that once actual expenses, including Sec. 179 or MACRS depreciation, have been applied, the use of standard mileage rates is not permissible for those vehicles. This determination is made on an individual vehicle basis. Note that parking fees, tolls, and taxes directly related to business use can still be deducted alongside the standard mileage rates.

Employer Reimbursement: Employer reimbursements for vehicle expenses based on the standard mileage rate are non-taxable, granted that employees document their trip details including time, place, and business purpose.

Employee Vehicle Expenses: Recent tax reforms have affected the deductibility of employee expenses, with the Tax Cuts and Jobs Act removing such deductions unless specific exceptions apply. Still, select groups like educators and certain performers may adjust their reported income with related expenses.

Self-employed Individuals: Self-employed persons retain the ability to deduct business vehicle use. Additionally, they may deduct the interest of any auto loans proportionate to the business use, recorded on their Schedule C.

SUV Expensing: Heavier SUVs, exceeding 6,000 pounds, can bypass regular luxury car depreciation limits, availing significant first-year deductions through Section 179 and bonus depreciation allowances. However, taxpayers should consider potential future liabilities if disposing of the vehicle within five years, as part of the deductions may need to be recaptured.

If you have any questions regarding optimizing your vehicle expense deductions or need guidance on necessary documentation, please contact our office for personalized advice.

Let's Connect

We look forward to speaking with you.

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