Automobile Expense is one of those expenses that the IRS likes to pay extra attention to. If you are audited, there are certain requirements you must meet, or the IRS will disallow the deduction all together!
The first and probably most important requirement is a mileage log. A mileage log must be kept that details the starting and ending destinations, the vehicle, the total miles driven, and the business purpose. Apps like MileIQ can be helpful in tracking mileage by doing most of the work for you by automatically tracking your trips. A log must be kept although the vehicle is in the business name and reported as a fixed asset and regardless of if you are taking the actual or standard automobile deduction.
Actual is exactly what is sounds like – your actual automobile expenses. This is your gas, insurance, repairs, maintenance, etc. Depreciation is also considered an actual expense, which allows you to deduct the cost of vehicle over its useful life (typically less due to special and bonus depreciation allowances).
Standard is simply the number of miles you drove during the year multiplied by an amount set annually by the IRS – 70 cents per mile for 2025. The mileage log is VERY important for this method, because how else will you know how many miles to use?
To use the standard method, you must use it from the start (when you purchased the vehicle for business purposes). Using the standard method in the first year also allows you to switch between the actual and standard method. This means you can deduct whichever is higher – so if your business puts a lot of mileage in, standard could potentially be better in a certain year. However, if you switch to actual from standard after year 1, depreciation must be calculated using the straight-line method and assumes prior depreciation was taken, even though it wasn’t.
Employees who have mileage, gas, or other automobile expenses reimbursed should always submit a mileage log for the employer to keep on file – that way the deduction can be substantiated to the IRS if they come knocking.
Automobile Expense is an attention grabber for the IRS because they know almost every business needs to use a vehicle in some way to operate, whether it’s meeting a client or driving to a job site. The IRS also knows that most businesses have lackluster records for this specific expense – so keep a detailed mileage log and all receipts!
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