If you use your vehicle for business, you can claim deductions for the cost of operating that vehicle. You can also claim the costs of operating a vehicle used for medical or charitable purposes. In previous years, you could claim moving expenses, but that has temporarily been suspended unless you are active in the military. Here are the IRS standard mileage rates from 2014 to 2019:

IRS Mileage Rate Deductions 2014-2019

  • Standard Mileage Rate 2019
    • Business: 58 cents per mile
    • Medical: 20 cents per mile
    • Moving (for active duty military with orders): 20 cents per mile
    • Charitable: 14 cents per mile
  • Standard Mileage Rate 2018
    • Business: 54.5 cents per mile
    • Medical: 18 cents per mile
    • Moving: 18 cents per mile
    • Charitable: 14 cents per mile
  • Standard Mileage Rate 2017
    • Business: 53.5 cents per mile
    • Medical: 17 cents per mile
    • Moving: 17 cents per mile
    • Charitable: 14 cents per mile
  • Standard Mileage Rate 2016
    • Business: 54 cents per mile
    • Medical: 19 cents per mile
    • Moving: 19 cents per mile
    • Charitable: 14 cents per mile
  • Standard Mileage Rate 2015
    • Business: 57.5 cents per mile
    • Medical: 23 cents per mile
    • Moving: 23 cents per mile
    • Charitable: 14 cents per mile
  • Standard Mileage Rate 2014
    • Business: 56 cents per mile
    • Medical: 23.5 cents per mile
    • Moving: 23.5 cents per mile
    • Charitable: 14 cents per mile

What is the IRS Standard Mileage Rate?

There are two ways to calculate your mileage when using your own vehicle for work purposes. You can use the actual costs or go with the optional Internal Revenue Service (IRS) standard mileage rates. The IRS sets the standard mileage rate every year, which taxpayers can use instead of calculating the actual costs for operating a personal vehicle. The IRS releases these rates with an IRS notice, which can be found online through the IRS website. In cases where prices are volatile, the IRS may adjust the mileage rate as needed, even partway through the year. The rules for calculating actual costs can be complex, and you will also need supporting documentation to prove your claim. This can include mileage logs for both business and personal use of the vehicle as well as receipts for purchases, such as gas, repairs, and insurance. The business mileage rate includes cars, trucks, and vans.

The standard mileage deduction may be easier to claim, but the actual expenses accrued may allow for a higher deduction. There are some restrictions when claiming the standard mileage rate. For example, you may not be able to use the standard mileage if you operate the vehicle for hire, like a taxi. You can also only use the standard mileage for up to four vehicles at a given time. With five or more vehicles, you must calculate the actual costs and collect the appropriate documentation to support your claim. Also, you cannot claim the mileage deduction if you’re also claiming depreciation or the Section 179 deduction for that vehicle.

How the IRS Calculates Mileage Rate Deductions

The IRS hires an independent contractor to calculate the mileage rates each year. The rules and regulations governing mileage rates can be found in several government documents, such as Rev. Proc. 2010-51, 2010-51 I.R.B. 883, § 274 (d) of the Internal Revenue Code, and §1.274-5 Income Tax Regulations. You can also find more information on the IRS website under Publication 463 (Travel, Entertainment, Gift, and Car Expenses). IRS Topic No. 510 (Business Use of Car) also provides useful information.

These rates are based on a selection of cost factors that include the price of gas, oil, repairs, depreciation, and other standard costs. The change in these costs each year create fluctuations in the mileage rates. For example, the 2015 mileage rate for business miles was much higher than in 2017. The standard rate does not cover tolls, parking, or interest on an auto loan. Business mileage rates include a substantial portion attributed to depreciation. From 2015 to 2019, roughly 24 to 25 cents per mile of the mileage rate is towards depreciation.

Use of the standard deduction may prohibit other depreciation deductions. You may have noticed that the standard mileage rate for charitable vehicle use has not changed. This level was set by statute and is not affected by inflation. This mileage rate applies to an individual using their vehicle both for charitable events and transportation to and from the charity location.

Employers may offer mileage reimbursement, which could be tax-free for the employee using their personal vehicle for business uses. Many companies use the fixed and variable rate (FAVR) plan, which bases reimbursement rates on regional costs and may include a monthly allowance. This is done to account for varying price differences and costs between states. Fixed costs are referring to regular costs, such as insurance and taxes. In contrast, variable costs refer to products and services like gasoline and maintenance. For example, an employee in Oklahoma may pay less for gas than someone in Hawaii or California. The FAVR reimbursement plan can be complex and may be best for larger organizations that do business in multiple states. A downside to FAVR is that it does not account for rapidly changing prices or price differences within a given region.

Instead of using FAVR, many companies instead opt for a simple cent-per-mile reimbursement rate, such as the optional IRS standard mileage rate. However, different employees will have different vehicle costs depending on a variety of factors. If a company reimburses an employee for their personal vehicle mileage, the employee may not be able to claim the costs on their taxes. However, if there are unmatched expenses beyond the company reimbursed amount, an employee may be able to capture those costs for a deduction. Regardless, the employee using their personal vehicle must keep track of their mileage and expenses using mileage logs, or other mileage tracking system.

Actual Expenses

Personal vehicles used for business purposes can accrue many expenses. These costs include depreciation, lease payments, licenses, registration, parking or garage rent, tires, repairs, fuel, insurance, and more. Carefully tracking personal vehicle mileage and other business expenses is vital when claiming deductions and credits on your taxes. If you use your vehicle for personal use as well as business use, then only the portion relating to business use can be considered. This requires tracking and designating which miles are attributed to personal use and which are for business use.

A sample log may show miles traveled, destination and starting locations, and receipts gathered on that trip. Many companies offer tools and company-approved logs for mileage recording. There are also many mobile apps and similar tools for easily tracking mileage and expenses on the go.

The mileage method you use can greatly impact your future reporting. If you use actual expenses to calculate your mileage in the first year that you use your personal vehicle for business, then you must continue using that method for the life of that vehicle. However, if you use the standard mileage for the first year, you may be able to switch to actual mileage in the second year and use either option in following years. Also, it is important to note that if an employer offers a company vehicle and the employee opts to use a personal vehicle instead, then it may not be eligible for business use deductions.

Calculating business travel expenses can be complicated. For example, the first and last trip of a given day may not be covered, such as commuting to work and home. However, if you claim the home office deduction, you may then claim travel to and from your home office as a business expense. The rules get more complicated if you have an administrative office, but there may be a possible deduction for that as well. You may also be able to claim additional expenses, such as car washes and polishing. For those with hefty yearly medical expenses over 10% of their adjusted gross income, there are additional deductions available. Health care travel expenses, such as driving to a provider and the associated parking costs, may be eligible to claim in this case. Always consult with a tax professional to ensure you are taking the proper deductions and not setting yourself up for trouble with the IRS.

2019 Tax Reform Impact

The Tax Cuts and Jobs Act introduced recently brought sweeping tax reform. In addition to a higher standard deduction, which reduces the taxable income of most taxpayers, the corporate tax rate has been reduced as well. These tax cuts have dropped the corporate tax rate from 35% to 21%. Pass-through businesses like sole proprietorships, LLCs, and partnerships may also benefit from a temporary 20% deduction on qualified business income.

Additionally, a temporary suspension of miscellaneous itemized deduction significantly impacts any moving expense. Mileage deductions for moving are currently suspended for everyone except active duty military with relocation orders to a new duty station. This suspension is currently set to expire in January 2026, though it may be renewed by Congress. The current IRS mileage rate for 2019 is 58 cents per mile for business use, 20 cents for medical, and 14 cents for charitable. Moving is set to 20 cents per mile, but only for active duty military personnel ordered to relocate. You may want to consult with a tax professional to see how your specific tax situation has been impacted by Trump’s tax reform.

Other Vehicle-Related Tax Deductions

In addition to deducting mileage expenses, there are other vehicle-related deductions that you may be able to claim. However, there are certain limitations and once you use some deductions, you may become ineligible for others. There are also some depreciation methods you can use on your vehicle–but again, these may prohibit using some deductions. For example, the Section 179 deduction allows for vehicle claims as long as over 50% of your driving is for work. You must also claim this deduction the first year the car is used for work.

There is also a special depreciation allowance for vehicles placed in service after September 27, 2017, which allows for 100% depreciation deduction. In some cases, you may be able to use Section 179, the special depreciation allowance, and the modified accelerated cost recovery system (MACRS) but the maximum deduction cannot exceed $11,160 for cars– and only $3,160 if not using the special allowance. This amount increases to $11,560 for trucks and vans (or $3,560 if not using the special allowance). MACRS is a depreciation system which is generally used to recover the cost of an asset over its lifetime.

An alternative to approach is using straight-line depreciation. If you use the standard mileage rate (which includes depreciation as part of the calculation) and then switch to the actual expense method, it impacts the depreciation of your vehicle. Instead of using MACRS, you may then have to use the straight-line method. To ensure you are maximizing your deductions and following the correct regulations, reach out to a professional tax attorney for more information.

Choosing the right mileage deductions, as well as the appropriate depreciation method, can be complex. What you choose may also limit your future options and return amount. Taxes can severely impact your bottom line if deductions and assets are not managed properly. Because of this, it is a good idea to carefully plan for your taxes and end of year liabilities.

Mileage Reimbursement Rate

If you use a personal vehicle for business, medical, moving, or charitable expenses, you can claim certain deductions on your taxes. There are two options for calculating the mileage rates to use: You can either collect supporting documentation of actual expenses for operating the vehicle, or you can use the standard mileage reimbursement rate provided by the IRS. Using actual expenses requires meticulous record keeping of your mileage. Be aware that if your employer provides a business mileage reimbursement program for business travel, you may not be able to claim these deductions on your taxes. However, any unreimbursed employee business expenses may be eligible for mileage reimbursement.

Claiming actual expenses may amount to a bigger deduction, but the process is more complex and time-consuming. The IRS standard mileage rate takes into consideration many of the fixed costs that vehicle owners face, such as depreciation, cost of fuel, and repairs. Because of these factors, you may not be able to claim other deductions if you use the standard mileage.

Taxes are complex, and errors on your tax return can delay your refund and even get you in trouble with the IRS. To ensure you are calculating depreciation correctly and claiming the right vehicle deductions, reach out to the tax professionals at Anderson Advisors today.

 

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