Business Vehicle Deduction: Mileage vs Actual Expenses
The IRS gives two ways to deduct business vehicle use: standard mileage rate or actual expenses. The choice matters, and the record-keeping requirements are the same either way.
Standard mileage rate
For 2026, the business standard mileage rate is projected around $0.70/mile (final IRS number publishes each December).
Multiply business miles by the rate. Done.
Also deductible: business-related parking and tolls.
You cannot deduct depreciation, gas, repairs, or insurance separately — they're built into the rate.
Actual expense method
Total actual vehicle expenses (gas, insurance, repairs, registration, depreciation, lease payments) times business-use percentage.
Requires tracking every expense receipt and total miles vs business miles.
Usually produces a larger deduction for expensive vehicles, low-MPG vehicles, or heavily driven vehicles.
The commitment rule
If you use actual expenses in year one on a vehicle you own, you're stuck with actual for the life of that vehicle.
If you use standard mileage in year one, you can switch to actual in later years (with adjusted basis calculations).
For leased vehicles: whatever method you pick in year one applies for the life of the lease.
Record-keeping — either method requires this
A mileage log showing date, business purpose, starting/ending location, and miles.
Total miles driven for the year (odometer at January 1 and December 31).
Apps like MileIQ, Everlance, and QuickBooks Self-Employed track this automatically via GPS. Do not try to reconstruct a log at tax time — that's the fastest way to lose the deduction in an audit.
Which one to pick
Fuel-efficient vehicle, lots of miles, cheap to own: standard mileage usually wins.
Expensive vehicle, heavy vehicle, moderate mileage: actual usually wins.
Run the calculation both ways in year one — that's when the decision is locked in.
A quick disclaimer
This article is general information for Montana small business owners, not tax, legal, or accounting advice for your specific situation. Rules change, and how they apply depends on facts we don't know about you. Before acting on anything you read here, talk to a qualified professional. If you're a Montana business owner and want a real conversation about your books, payroll, or tax, that's what Marlow Accounting is here for — call 406-290-1214 or schedule a discovery call.