- 1 Standard Mileage Rate for Deducting Car and Truck Expenses
- 2 What Is the Standard Policy for Mileage Reimbursement to & From the Airport for a Small Business?
- 3 What Is the Tax Deduction Amount for Medical & Charitable Mileage?
- 4 One Very Important Deduction You Could be Missing on Your Taxes
- 5 what is the standard mileage deduction
Standard Mileage Rate for Deducting Car and Truck Expenses
2017-01-03 When a motor vehicle is 1 st put in service for business, expenses can be deducted using either the standard mileage rate or actual operating costs of the motor vehicle, including depreciation on the vehicle. The standard mileage rate can be applied to cars, vans, pickup trucks, or panel trucks. However, motorcycles, scooters, or bicycles require deducting actual expenses, since the IRS considers the standard mileage rate to be too generous for these fuel-efficient vehicles — especially bicycles! Travel expenses for getting medical services or for moving or to provide charitable services are also deductible, but at a lower rate.
The standard mileage rate is based on annual studies, which are currently being done by Runzheimer International, on the variable and fixed costs of operating a motor vehicle. The studies determine the standard mileage rate for business, medical, and moving expenses. However, the $.14 rate established for travel for charitable purposes is set by statute, so it does not usually change year to year.
When considering which method to choose, you should consider the fuel efficiency of the vehicle and how it will be used in business. If you use a fuel-efficient car, the standard mileage rate may yield greater tax savings. If the choice is made to claim actual operating costs and depreciation, then the standard mileage rate cannot be used at any time for that vehicle. However, if the standard mileage rate is chosen in the 1 st year, then the taxpayer can still decide to deduct operating costs and depreciation in later years. However, MACRS depreciation and first-year expensing can only be used if the deduction of actual operating expenses is chosen in the 1 st year. If a switch is made to claim actual expenses from the standard mileage rate, then straight-line depreciation must be used for the remaining estimated useful life of the vehicle if it is not already fully depreciated.
The standard mileage rate includes coverage for the operating cost of the vehicle plus depreciation. In addition to the standard mileage rate, other variable expenses are also deductible, regardless of the method used to claim expenses for the vehicle, such as:
- parking fees and tolls that are paid during business trips;
- the business-use percentage of
- interest on loans to buy the vehicle;
- value-added taxes assessed on the vehicle purchase.
One advantage of the standard mileage rate over claiming actual expenses is that if the taxpayer uses more than 1 vehicle, then the deduction is easily calculated by simply totaling the total number of miles in each vehicle. However, the standard mileage rate cannot be claimed for fleet operations where 5 or more vehicles are used in the business or for vehicles used as a taxicab. The mileage rate can be claimed for leased vehicles, but if it is chosen, then it must be used for the entire lease period, including renewals.
The mileage rate already includes deemed depreciation, so the taxpayer must reduce the basis of the vehicle by the amount of depreciation that is accounted for by part of the mileage rate. If a switch is made later on to claim actual operating costs and depreciation, then depreciation can be claimed only if the tax basis of the vehicle is greater than zero.
What Is the Standard Policy for Mileage Reimbursement to & From the Airport for a Small Business?
If air travel is an unavoidable expense for your small business, a deduction for the mileage you put on your car driving to and from the airport is ordinarily deductible. This is true even when employees do the driving and you reimburse them for the mileage put on their cars. There isn't a standard policy you have to follow, but the way the deduction is reported will depend on the reimbursement policy your business does follow.
Whether you reimburse your employees' actual car expenses for driving to and from the airport, such as the amount they pay-out-of-pocket to fill up their gas tanks, or use the standard mileage rate -- a fixed rate set periodically by the Internal Revenue Service for each business-related mile driven -- you can always deduct the payments as a business expense. The deduction is reported as a travel expense when your company's standard policy is to make reimbursements under an “accountable plan,” as defined by the IRS. If the reimbursement policy doesn't qualify as an accountable plan, all mileage reimbursements, not just those covering airport travel, are deducted as employee wages.
The IRS requires your reimbursement policy to impose three requirements on employees to be considered an accountable plan. The first requirement is that the reimbursements must only cover business-related expenses -- which, in the context of mileage related to the airport, requires your employees to be flying for a job-related reason. The second requirement is that the policy must require employees to adequately account to you for their actual mileage expenses. This requirement is automatically satisfied if your plan uses the standard mileage rate to reimburse employees who drive their own cars to the airport. The third requirement is that the policy must insist that employees return excess reimbursements, such as when you pay them in advance and the amount paid turns out to be more than expense. When mileage reimbursements are made this way, payments are tax-free to your employees.
If your business's policy doesn't qualify as an accountable plan, you must treat reimbursements as wages and include them on each affected employee's W-2 form at the end of the year, meaning that the payments are taxable to employees. As a result of deducting these reimbursements as wages, it's also necessary to withhold the same income taxes, Social Security, Medicare and other taxes that you withhold from employee paychecks. Increasing employee wages to include reimbursements also means that the amount of deductible employment taxes the business pays increases as well.
When you're self-employed and operate as a sole proprietor, or are subject to tax like one because you're the sole member of a limited liability company, deduct the mileage you put on your car when driving to or from an airport for business reasons as a travel expense on your Schedule C. If the air travel relates to a specific client who reimburses you after receiving receipts or other documentation that supports your mileage expense, you can exclude the payment from the self-employment earnings you report on Schedule C, instead of having to include it in income and then take a travel expense deduction for it.
Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.
What Is the Tax Deduction Amount for Medical & Charitable Mileage?
by Michael Keenan
Tracking your mileage when driving to medical care can save you on your taxes.
To make your life simpler, the Internal Revenue Service sets a standard mileage rate that you can use to figure your mileage deductions if you drive for medical or charitable purposes. As of 2014, you can deduct 23.5 cents per mile for medical mileage and 14 cents per mile for charitable mileage.
The deductible costs of operating an automobile for charitable and medical purposes are both itemized deductions, which means you can only claim them if you forgo the standard deduction. If you take the standard deduction, you won't get any credit for your mileage. In addition, the IRS website says that for medical expenses, "you may deduct only the amount by which your total medical expenses exceed 10% of your adjusted gross income or 7.5% if you or your spouse is 65 or older." This includes mileage expenses.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."
One Very Important Deduction You Could be Missing on Your Taxes
This post is sponsored by MileIQ, however, all opinions and miles driven to Starbucks are 100% mine.
If you haven't been tracking your mileage, you could be missing out on some BIG tax deductions at the end of the year. Yes, you!!
Mileage deductions are typically thought of as a business-only benefit, but they're available to everyone depending on what you do or where you go. You just need to do two things….
- Know the rules for each deduction.
- Keep extremely detailed records for every trip you take.
Sounds like more hassle than they're actually worth, right?
Well, that's certainly what I used to think. Both Joseph and I have had plenty of opportunities to track mileage with all of our eligible business and personal trips….and believe me, it's not that we haven't tried.
We've kept notebooks in the car, cute little printables at home, and spreadsheets on Google Drive, but it finally became such a hassle to remember to record our mileage, that we basically shrugged it off and said it wasn't worth doing. Tracking mileage was basically one more thing to keep tabs on our already jam-packed to-do list.
Until our CPA gently reminded us how much we were missing out.
Now that I've realized what kind of impact mileage deductions have on our overall taxes, I'm done losing out on money I can legally write off. I don't want you to keep missing out either!
This in-depth post break downs exactly how the mileage deduction works, what you can deduct and for how much, and by far, the best app I've found to easily keep track of everything. My goal is to make this complicated portion of the tax code is an absolute no-brainer so you can stop paying the government any more than you have to.
Ready to get started?
If you're not familiar with how deductions actually work Adding mileage to your list of deductions pushes that taxable number even lower so you owe less. Basically, the more you claim, the more you save! Let's dig into the nitty gritty detail of what's covered, and what's not. Note: These are 2016 standard mileage rate numbers I'm using.
Adding mileage to your list of deductions pushes that taxable number even lower so you owe less. Basically, the more you claim, the more you save!
Let's dig into the nitty gritty detail of what's covered, and what's not. Note: These are 2016 standard mileage rate numbers I'm using.
Let's bring back that $60,000 number and say that's what you made for the year. If your medical expenses are $5,000 , you can't deduct anything. But if expenses are $7,000, you get to deduct $1,000. Make sense?
- Charitable Expenses — If you drive to and from a non-profit as part of a volunteer activity, you get to deduct $.14 per mile. It's not much, but every little bit counts! FYI: You cannot claim this for driving a child to a volunteer activity…..just the adults.
- Moving Expenses — If you're relocating for work at least 50 miles away or more, you can deduct $.19 per mile. However, you do have to work full-time for at least 39 weeks during the first 12 months after you move to claim it.
- Freelance Expenses — Those that babysit, petsit, do lawn care, or participate in some sort of other odd job, get to deduct all of the drives to and from those locations. And the deduction rate is $.54 per mile!
Those who own their own business get to also take advantage of the $.54 per mile rate, and it covers quite a bit.
- Errands and Supplies — Any time you need to run to the bank, office supply store, or post office, you can write those drives off. All those little trips really add up!
- Meals — Have a meeting with a friend or business partner to discuss business? Write off your trip for coffee, drinks, and/or dinner.
- Travel — Drives to and from the airport, or to another place of business qualify too.
- Customer Visits — If you have a job that requires you to meet with customers, you know what to do…..write it off!
Heads up — commuting from home to a permanent work location is not deductible in any way. It's considered a personal expense and the IRS is very strict about this — so don't test it! You can find more details on that HERE, plus how to handle mileage driven to a temporary work location .
As I've said before, mileage deductions can be a pretty huge boost during tax time, but the truth is, most mileage records are not adequate enough, and therefore denied by the IRS. Remember, they have to be extremely detailed! The best app I've found that satisfies these strict requirements is MileIQ.
MileIQ is basically a tracking app that runs in the background on your smartphone. It automatically registers every drive, and when you're done with each trip, you just classify that drive as business or personal, and file it under the category it belongs with one swipe.
Now I know what you're thinking…..what if you don't want MileIQ to track every drive? Not all drives are going to be deductible, but the point of this app is that it tracks every drive so you never forget.
MileIQ highly recommends that you keep track of all your driving so you have complete records to show the IRS. Because when it comes right down to it, the IRS wants to know how many miles you drove during the year, and actually requires this detailed information when you file your taxes.
Although I've already submitted all my tax info for 2015, I'm super excited to track all my miles this year and see the major impact this has on our 2016 taxes. The best part? No time consuming mileage logs or spreadsheets to deal with!
MileIQ increases mobile productivity for the modern workforce, and is committed to saving you time, money, and peace of mind through their streamlined mileage tracking app. Learn more about MileIQ HERE.
Disclosure: Some of the links in the post above are affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission. Regardless, I only recommend products or services I use personally and believe will add value to my readers. Read my full disclosure policy here.
what is the standard mileage deduction
Rather than keeping track of the actual cost of operating a vehicle, employees and self-employed taxpayers can use a standard mileage rate to compute their deduction related to using a vehicle for business. But you might also be able to take a mileage deduction for other purposes, including medical, moving and charitable purposes.
What are the deduction rates?
The rates vary depending on the purpose and the year:
Business: 54 cents (2016), 53.5 cents (2017)
Medical: 19 cents (2016), 17 cents (2017)
Moving: 19 cents (2016), 17 cents (2017)
Charitable: 14 cents (2016 and 2017)
The business standard mileage rate is considerably higher than the medical, moving and charitable rates because the business rate contains a depreciation component. No depreciation is allowed for the medical, moving or charitable use of a vehicle.
In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls.
The rules surrounding the various mileage deductions are complex. Some are subject to floors and some require you to meet specific tests in order to qualify.
For example, miles driven for health-care-related purposes are deductible as part of the medical expense deduction. But medical expenses generally are deductible only to the extent they exceed 10% of your adjusted gross income. (For 2016, the deduction threshold is 7.5% for qualifying seniors.)
And while miles driven related to moving can be deductible, the move must be work-related. In addition, among other requirements, the distance from your old residence to the new job must be at least 50 miles more than the distance from your old residence to your old job.
There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates.
So contact us to help ensure you deduct all the mileage you’re entitled to on your 2016 tax return — but not more. You don’t want to risk back taxes and penalties later.
And if you drove potentially eligible miles in 2016 but can’t deduct them because you didn’t track them, start tracking your miles now so you can potentially take advantage of the deduction when you file your 2017 return next year.