Every year, the Internal Revenue Service announces the optional standard mileage reimbursement rates. The IRS uses these rates to calculate the deductible costs of operating a vehicle for business, charitable, medical or moving purposes. Inflation is the primary reason why mileage reimbursement rates are have been adjusted for 2017.
Charitable, Medical and Moving Mileage Reimbursement Rates
Beginning on Jan. 1, 2017, the standard mileage reimbursement rates for the use of a car, van, pickup or panel truck, are:
- 53.5 cents per mile for business miles driven. This includes a 25-cent-per-mile allocation for depreciation. This is down from 54.0 cents in 2016;
- 17 cents per mile driven for medical or moving purposes. This is down from 19 cents in 2016; and
- 14 cents per mile driven in service of charitable organizations. Hence, this has been the same for over 15 years or so.
Standard Mileage Rate for Businesses
The standard mileage reimbursement rate for a business is based on an annual study of the fixed and variable costs of operating a vehicle. For medical and moving purposes, variable cost is the basis for the rate and that same study determines that. The rate for using a vehicle while performing services for a charitable organization is legally set by Congress.
Switching Between the Actual Expense and the Standard Mileage Rate Methods
Here is what needs to be considered. The 2016 fuel costs are the basis for the 2017 mileage rates. You should note that 2016 was at a historic low. On top of that, the decision was made by the decision was made by OPEC to cut production. Why, would OPEC do this? OPEC did this in an effort to drive up fuel costs. AAA has predicted an increase in fuel prices in the near future. Since gas prices are going up in 2017, consider switching to the actual expense method for or this year. At the very least, keep track of the actual expenses, including fuel costs, repairs, maintenance, etc. So, that option is available to you this year.
What is the Bonus Depreciation Allowance?
Taxpayers always have the option to calculate the actual costs of using their vehicle for business rather than using the standard mileage rates. In addition to the higher fuel prices, the extension of the bonus depreciation may makes using the actual expense method a worthwhile consideration. You will want use this in the first year the vehicle is put on the road for service. Also, remember this extension is only though 2019. The allowance for bonus depreciation adds an additional $8,000 to the maximum first-year depreciation deduction of passenger vehicles and light trucks that have an unloaded gross vehicle weight of 6,000 pounds or less.
However, the employee can’t use the standard mileage rates when the actual method is in use. You must use the Sec. 179, bonus depreciation and/or MACRS depreciation in the previous years. This rule is applied on a vehicle-by-vehicle basis. In addition, the employee can’t use the business standard mileage rate for any vehicle in use for hire or for more than four vehicles at the same time.
Employer Reimbursement for Mileage Reimbursement
This is where employers reimburse employees for business-related car expenses using the standard mileage allowance method. For each business mile the employee claims on behalf of the employer that employee gets their money back up to what the IRS allows. You should note that there has to be proof that the travel took place. The reimbursement is tax-free if the employee can prove to the employer the time, place, mileage and purpose of employment business travel.
When Travel Expenses Are More Than Mileage Reimbursement
What about employees whose actual business mileage expenses are more than the employer’s reimbursement? They can deduct the difference on their income tax return. This deduction is a miscellaneous itemized deduction and is subject to the 2%-of-AGI floor. However, an employee who leases an automobile, and receives reimbursement of the mileage allowance method, can’t claim a deduction based on actual expenses unless it is consistently done from the beginning, with the first business use of the vehicle.
Special Mileage Allowances for SUVs
Faster Write-Offs for Heavy Sport Utility Vehicles (SUVs)
Many of today’s SUVs weigh more than 6,000 pounds and are not subject to the luxury auto depreciation limit rules. Taxpayers with SUVs can utilize both the Section 179 expense deduction and the bonus depreciation. The Section 179 expense deduction is up to a maximum of $25,000. The bonus depreciation requires that the Section 179 deduction must first apply, and can produce a sizable first-year tax deduction. However, the vehicle can’t exceed a gross unloaded vehicle weight of 14,000 pounds.
Caution: Business Autos Are 5-year Class Life Property
What does that mean? Many taxpayers tends to dispose of their vehicle before they have owned it for a full five years. When you get rid of the vehicle early, before the end of the 5-year period, a portion of the Section 179 expense deduction is a recapture. When this takes place you must add it back to income. Also, self-employed people must add the Section 179 expense deduction back into their income, as well. Seriously consider the future consequences of deducting all, or a significant portion, of the vehicle’s cost using Section 179. It can cost you.
Questions About Mileage Reimbursement for 2017?
If you have questions related to the best methods to use for deducting the business use of your vehicle or the documentation you need, give Alex Franch, BS EA at Worthtax a call at 781.849.7200. He has over 8 years experience helping his clients get the most out of their tax refunds. But you will want to get a jump on this year’s tax season soon. Call our office for an appointment today, so you can beat the rush. Worthtax has locations in Quincy, Weymouth and Dedham or book your appointment online. Remember, it is better the money is in your pocket.
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