DOES MILEAGE MATTER ANY MORE UNDER TAX REFORM?
The Internal Revenue Service has issued the 2019 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. The IRS attempts to make it easier for the average person to file business-use deductions for auto travel, which is why they created the standard mileage rate for the use of a car, van, pickup or panel truck, to help offset fuel, lease payments and even depreciation. Fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil, etc.
The standard mileage rate also can be used as the maximum amount an employer can reimburse an employee for operating an automobile for business purposes without substantiating the actual expense incurred. Beginning on Jan. 1, 2019, the standard mileage rates are:
- 58 cents per mile driven for business use, up 3.5 cents from the rate for 2018,
- 20 cents per mile driven for medical or moving purposes, up 2 cents from the rate for 2018, and
- 14 cents per mile driven in service of charitable organizations.
The business mileage rate increased 3.5 cents for business travel driven and 2 cents for medical and certain moving expense from the rates for 2018. The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.
The charitable rate is set by statute and remains unchanged. To use the rates, simply multiply the standard mileage rates by the number of miles traveled.
If you use your car for more than one use, you’ll want to keep appropriate records and back out the cost of personal travel. You may also use more than one rate on your tax return.
It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee business travel expenses from 2018 to 2025. The standard mileage rate cannot be used to claim a deduction for those expenses during that period. That deduction was eliminated from Schedule A alongside similar deductions like the home office deduction. This does not affect any deductions that are properly claimed on a Schedule C for the self-employed, freelancers and independent contractors. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
The portion of the business standard mileage rate that is treated as depreciation will be 26 cents per mile for 2019, 1 cent more than 2018.
To compute the allowance under a fixed and variable rate (FAVR) plan, the maximum standard automobile cost is $50,400 for 2019 for all automobiles (including trucks and vans), an increase of $400 from 2018. The FAVR amounts were recalculated last year after the TCJA retroactively amended the bonus depreciation rules. Under a FAVR plan, a standard amount is deemed substantiated for an employer’s reimbursement to employees for expenses they incur in driving their vehicle in performing services as an employee for the employer.
Who Can Use The IRS Standard Mileage Rate Deduction? Anyone that drives for business purposes:
- Real estate agents
- Salespeople
- Self-employed
- Contractors
- Freelancers
Many clients incur employee business expenses in connection with their jobs. This is particularly true of people who work in sales. Under the old tax law, you were able to deduct unreimbursed employee business expenses, to the extent they exceeded 2% of your adjusted gross income. That provision is gone in the new tax law.
The work around is to ask your employer to switch to a reimbursed employee business expense system. That’s where you incur the expenses in connection with your job, and your employer reimburses you after the fact. In that way, expenses will be deductible to your employer, and the tax impact on you will be neutralized.
Don’t forget! It is important when dealing with the IRS to keep detailed records. A mileage tracking application can help – there are many free platforms available.
Contact Us: Are you taking advantage off all the tax deductions available to you as a small business owner or self employed individual? Make sure you are keeping more of what you made last year in your pocket and start 2019 off right – there is still time to set an appointment for 2018 filings and do tax planning for 2019. Contact your Fuoco Group accountant and business advisor toll free in New York or Florida at 855-534-2727.
