Owning a vehicle can be expensive. Between the costs of purchase, insurance, taxes, maintenance, fuel, tolls, and parking, the average person spends thousands of dollars annually to own and operate a car.
Although your day-to-day use of a car isn’t a tax deductible expense, you may be able to deduct some of the cost from your taxes if you drive it for business, volunteer, or medical purposes. You may also be able to deduct expenses if you are a member of the military and move as a result of orders.
For 2019, the federal mileage rates were 58 cents per mile for business use of your car, 20 cents per mile for medical or moving purposes, and 14 cents per mile for charitable purposes.
On January 1, 2020, the business and medical/moving rates went down to 57.5 cents per mile for business use and 17 cents per mile for medical or moving purposes. The charitable use rate remains the same, 14 cents per mile.
In terms of real dollars, the standard mileage deduction can be significant if you drive your car for work on a regular basis. For example, if you work in sales and drive 750 miles per week for business, or 37,500 miles per year (50 weeks times 750 miles), the resulting deduction on your 2019 taxes is $21,750. If you drove 1,000 miles for charity, you can add an additional $140 to your charitable giving deduction.
That being said, there are strict rules regarding the mileage deduction, and not everyone who uses their vehicle for work, medical, moving, or charitable purposes can take it.
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What Is Standard Mileage Rate?
The standard mileage rate is the federally determined amount per mile driven that qualifying taxpayers can deduct from their federal income tax. There are different standard mileage rates for business, medical and charitable, and moving expenses.
Business mileage rates are based on the fixed and variable costs associated with the operation of a vehicle, including fuel, oil, maintenance, and insurance. The IRS determines other mileage rates by using variable costs only. You calculate the total deduction by multiplying the documented miles driven by the corresponding mileage rate.
How to Qualify for a Standard Mileage Rate Reimbursement
Only certain taxpayers can deduct mileage expenses on their tax returns. These include some employees who use their personal vehicles for work, some self-employed individuals, people who take certain medical expense deductions, individuals who use their vehicles for charitable work, and active duty military personnel who moved due to orders. Even within those categories, though, not everyone can take the deduction.
If you use your vehicle for work, whether you are self-employed or work for someone else — for example, you drive your own car for sales calls — you may be able to deduct some of your expenses related to the use of the car. The IRS allows you to take either the business standard mileage deduction or the actual expenses associated with using your car (i.e., gas and maintenance expenses), but not both.
You also cannot take the mileage deduction if your employer has already reimbursed your expenses, or if you claim unreimbursed business expenses. Additionally, the IRS prohibits business mileage deductions if you claim a vehicle depreciation deduction.
It’s also important to note that you can only take the standard mileage deduction for business use of your vehicle if you do so the first year you use the car for business. If you opt to deduct actual expenses that year, you can only deduct actual expenses every year going forward. If you take a deduction using standard mileage that first year, though, you can decide whether to continue using that method or actual expenses in subsequent years.
The IRS allows individuals to deduct expenses for mileage accrued driving for medical purposes, such as to and from doctor’s appointments. As with business mileage, you have the option of deducting either the standard mileage rate or actual expenses.
To take this deduction, you must also be taking a medical expense deduction, which is only an option if your expenses exceed 7.5% of your adjusted gross income.
If you use your car as part of your work with a charitable or nonprofit organization, you can take a vehicle-related deduction as a charitable gift on your tax return. Again, you have the option of deducting the standard charitable mileage rate, or your actual expenses. Only the expenses directly related to your charitable work are deductible. In other words, you can deduct mileage accrued driving to and from a volunteer assignment, but not general maintenance on your vehicle.
Only active duty members of the military who move under orders are qualified to deduct moving expenses on their tax returns, which may include mileage. You may use the standard rate for moving purposes to calculate your deduction for the use of any vehicle (car, truck, or moving truck or van) from your taxes.
How to Deduct Mileage Expenses
If you are an individual filer, deduct mileage expenses using Schedule A for itemized deductions on Form 1040. If you are self-employed, you must use Schedule C (Profit or Loss From Business) to take the deduction.
It’s very important that you have records documenting how many miles you drive if you intend to deduct this expense. Although you do not need to submit evidence of your mileage with your tax return, if the IRS examines your return, it may request more information to support your deduction.
The agency recommends keeping a daily log of your business miles driven that includes the date, your destination and the purpose of the trip, the odometer readings at the beginning and end of the journey, and any additional expenses you incurred, such as parking or tolls. Keep copies of receipts as well to document your expenses. Without this documentation, the IRS may deny the deduction upon review of your return, leading to additional tax, penalties, and fees.
If you plan to deduct expenses related to the use of your vehicle, calculate the deduction using both the standard mileage rate and the actual expense method to determine which is more beneficial. A professional tax preparer can also help you maximize your deduction to reduce your overall tax bill and increase your refund.
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