Tax & Accounting News
The IRS Announces the Standard Mileage Rates for 2017
There are a number of situations for which American taxpayers are permitted to deduct the costs of driving. These include those who use vehicles for charitable or medical purposes, those who are deducting the costs of moving, and of course for those who are driving as part of conducting their business. The amount that can be deducted per mile traveled is a reflection of the costs of operating a vehicle as well as the costs of fuel, and these costs are reviewed each year.
Following careful study and adjustments for inflation, the Internal Revenue Service publishes these rates, and they recently did so for the deductions to be taken as of January 1st, 2017. Though the charitable number has stayed the same for 15 years based upon a deduction that was set by Congress (and cannot be changed without similar action), the 2017 deductions have been reduced, largely as a reduction of fuel costs. Whether your vehicle is a car, a van, a pickup truck or a panel truck, the mileage deductions are as follows:
5 cents per mile (down from 54.0 cents in 2016) for business miles driven. This includes a depreciation allocation of 25 cents per mile).
17 cents per mile (down from 19.0 cents in 2016) for medical purpose or moving miles driven.
14 cents per mile for charitable organization miles driven.
In determining the mileage rate that is appropriate for a business to deduct, a study is done each year analyzing what the costs are of operating a vehicle. These costs include both variable costs and fixed costs. The same process if followed for other types of miles driven, including moving costs and those driven for medical purposes. As indicated above, Congress created legislation that statutorily established these costs for charitable organizations, and they have remained stable for many years – and will continue to do so until there is legislative change.
Things to Remember
There are a number of reasons why the 2017 costs were lowered, with the most important of these being the reduced costs of fuel in 2016. This led to OPEC making the decision to seriously curtail oil production in the hopes that it would increase gasoline costs, and if this comes to pass then the fuel costs in 2017 will probably increase dramatically.
This notion has been confirmed by a prediction published by the Automobile Club, and if this comes to pass then those who incur driving-related expenses may find it advantageous to change the way that they approach the deduction and switch to recording their actual expenses instead of taking the much less complicated route of recording mileage. Doing so entails keeping careful records and receipts for all driving-related expenses, including the cost of gasoline and repairs, as well as any maintenance that is needed for the vehicle used.
If you use a vehicle for business, it is important to consider tracking and calculating your actual expenses rather than miles this year. This is not simply because fuel costs are likely to rise, but also because the IRS has extended the ability to take a bonus depreciation on your vehicle’s first year of service through the year 2019. Whether the vehicle you use for business is a passenger car or a light truck with an unloaded gross vehicle of 6,000 pounds or less, this extension offers you the opportunity to deduct an additional $8,000 in maximum first year depreciation, but this is only true if you deduct actual expenses.
Complicating matters is the fact that you are not able to use the standard mileage rates if you have previously used the actual method (using bonus depreciation and/or MACRS depreciation/section 179). You also are not able to use standard mileage rate for business if you are operating more than 4 vehicles at the same time or if any of your business vehicles are available for hire).
If You Are an Employee Who Is Reimbursed for Mileage
If your company pays its employees back for car expenses that are substantiated as being connected to employment/business, and they use the standard mileage allowance, then the reimbursement that you receive from them is not taxable as long as you have provided your employer with documentation, including the actual mileage, when you traveled and how it was connected to business, and where you traveled to and from.
If your actual business mileage expenses amounted to more than what your employer provides to you in reimbursement, then you are able to take a deduction for the difference when you file your income taxes as long as the business is more than the 2% of adjusted gross income threshold and you are able to itemize your miscellaneous expenses. This ability is limited – if your vehicle is leased, then in order to deduct your mileage costs you have to have done so from the very first time you used the vehicle for business.
Special Rules to Expedite Heavy Sport Utility Vehicle Write-Offs
The rules regarding writing off depreciation on vehicles limits taxpayers to those that weigh 6000 pounds or less, and that means that most of today’s SUVs don’t qualify. If you drive one of these heavier vehicles you can use the Section 179 expense deduction instead, as well as the bonus depreciation afterwards. This provides a significant first year write-off of up to a maximum of $25,000 as long as the vehicle in question weighs less than 14,000 pounds unloaded.
It is important to note that when it comes to writing off business autos, they are in a property class that lasts five years, and this can present a problem if, like many other vehicle owners, you dispose of your vehicle in a shorter period of time. Doing so will lead to a recapture of the Section 179 expense deduction, and that ends up being added back into either your self-employment or employment income. Taxpayers should keep this in mind when planning their Section 179 deductions.
Though writing off vehicle expenses and mileage may seem straightforward, there are some complicating factors that may be helpful to discuss before submitting your tax forms or documentation. Contact your tax professional today to make sure that you have positioned yourself in the most advantageous way.
Karen C. Drescher, CPA, CGMA
Whether it is helping a individual or a Georgia small business with their taxes, or offering to be a backstop through their difficulties, Karen is always there for her clients. When you are a client of Karen's, she always tries to make you feel comfortable in a casual and friendly environment.
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