The two methods in one paragraph each
Standard mileage rate. Count business miles, multiply by the IRS rate — 72.5¢ per mile in 2026. The rate bundles gas, maintenance, insurance, repairs, and depreciation into one number. Parking and tolls are extra. Recordkeeping: a mileage log.
Actual expenses. Add up what the car really cost — fuel, oil, tires, repairs, insurance, registration, lease payments or depreciation — and deduct the business-use percentage of the total. If 60% of your miles were business, you deduct 60% of costs. Recordkeeping: every receipt plus a mileage log (more on that trap below).
The first-year rule that locks your options
This is the part almost nobody tells you at the right time:
- To ever have the choice, you must use the standard mileage rate in the first year the car is used in your business. After that you can switch between methods year to year (with a depreciation adjustment).
- Start with actual expenses in year one — including taking accelerated depreciation or a Section 179 write-off — and that car is on the actual method for as long as you own it.
- Leased cars: pick the standard rate and you must keep it for the entire lease, renewals included.
Rule of thumb: unless you have a clear reason otherwise, take the standard rate in year one. It preserves every option.
Who actually wins with actual expenses
- Expensive or thirsty vehicles — a new truck or SUV with heavy depreciation and 15 MPG can beat 72.5¢/mile, especially with bonus depreciation in the early years.
- Very high business-use percentage— a vehicle that's 90%+ business amplifies every real dollar of cost.
- Low annual miles, high fixed costs — few miles spread insurance and depreciation thin per mile, so the per-mile rate underpays you.
Flip side: a reliable, paid-off, efficient car doing lots of miles — the classic gig-driver setup — almost always does better on the standard rate, with a fraction of the paperwork. That's why most delivery drivers take the rate.
The trap: actual expenses still requires a mileage log
People pick actual expenses thinking they can skip mileage tracking. Backwards: the business-use percentage that multiplies every cost is defined by miles — business miles over total miles. No log, no defensible percentage, no deduction. Whichever method you choose, the mileage log is mandatory; the only question is whether you also keep a shoebox of receipts. (Requirements for the log itself: what the IRS actually accepts.)
How to decide, practically
- Year one with a car: default to the standard rate unless the vehicle is new/expensive.
- If in doubt, run both numbers for one representative year — your log gives you business-use percentage; your bank statements approximate actual costs.
- Owned car + rate chosen in year one? You can re-run the math any year and switch.
- Big new vehicle purchase planned? That's the moment to talk to a tax pro first.