What's Happening?
The Internal Revenue Service (IRS) has announced an increase in the optional standard mileage rate for business use of automobiles to 72.5 cents per mile starting in 2026, marking a 2.5-cent rise from the previous year. This adjustment reflects updated cost data and annual inflation adjustments. The mileage rate for vehicles used for medical purposes will decrease by half a cent to 20.5 cents per mile. These rates are used to calculate the deductible costs of operating vehicles for business, charitable, and medical purposes. The rate for charitable use remains unchanged at 14 cents per mile. The IRS bases the business mileage rate on an annual study of the fixed and variable costs of operating an automobile, while the medical and moving purposes rate is based
solely on variable costs.
Why It's Important?
The adjustment in the mileage rate is significant for businesses and individuals who rely on vehicle use for their operations, as it affects the calculation of deductible expenses. The increase in the business mileage rate could lead to higher deductions for businesses, potentially impacting their taxable income and financial planning. For individuals, especially those in the Armed Forces or intelligence community, the changes in moving expense deductions could influence relocation decisions. The IRS's decision to adjust these rates annually ensures that they remain aligned with economic conditions, providing a fair and updated framework for taxpayers.
What's Next?
Taxpayers who use the standard mileage rate for a vehicle they own and use for business must choose to use the rate in the first year the automobile is available for business use. In subsequent years, they can opt for the standard mileage rate or actual expenses. For leased vehicles, the standard mileage rate must be used for the entire lease period. The IRS will continue to monitor economic conditions and adjust these rates as necessary to reflect changes in operating costs and inflation.
