27 May 2016
The deduction for mileage one of the tax breaks I see taxpayers not taking as often as they should be. More people qualify for it than they realize, and I am writing this article because I want more people to realize it! It can make a tremendous difference in your tax bill at the end of the year.
People who drive as part of their job are generally aware they can deduct mileage as a business expense, but many don’t fully grasp the significance of the deduction. It can be huge. I had a client this year who mentioned his mileage as an afterthought. I had prepared his taxes and reviewed the return with him. Then he mentioned that he frequently drives to temporary work locations as part of his job. He had records of the mileage in his car. I had him go get them and he sat and watched me add the deduction to his tax return. He was able to see in real time as $1,800 came off his tax bill. I doubt he’ll ever forget to mention his mileage to me again!
Who can claim the mileage deduction?
It’s a bit of a trick question. There really isn’t a mileage deduction, but there are deductions for vehicle expenses if you used your vehicle for work/business, for moving, or to support a charity. In all of those situations you can either deduct the actual vehicle expenses or you can take a standard deduction based on the number of miles driven for the specific activity. The standard mileage rate is much simpler to calculate and track, and it often provides a larger deduction than the actual expenses.
No matter which method you are using to deduct your vehicle expenses be sure to track your tolls and parking separately. You can deduct the cost of those items even if you are using the standard mileage rate to figure your deduction.
Driving for work or business – 57.5 cents per mile (drops to 54 cents per mile in 2016 – the cost of operating a vehicle is cheaper than it used to be).
I love this diagram. It comes from IRS pub 17 and makes determining whether or not your mileage is deductible as work or business a breeze. I think it should go into the Smithsonian. It is a national treasure.
Driving to your regular work location (your normal commute) and then back home is never deductible. But if you leave your normal work location to go to a temporary work site or a second job, that mileage is deductible. If you drive from home to a temporary work location that mileage is deductible. If you drive from your temporary work location to your second job, that mileage is deductible.
Moving Mileage – 23 cents per mile.
As I mentioned in a recent post, you can deduct moving expenses associated with starting a new job. You can refer to that post if you want more details.
Charitable Mileage – 14 cents per mile (18 cents per mile in Virginia!)
If you use your vehicle in the service of a qualified charitable organization, you can deduct the actual expenses of the gas and oil or you can take a standard mileage rate deduction of 14 cents per mile. So, if you drove your kid’s scout pack down to Kitty Hawk to see the Wright Brothers museum, keep track of that mileage because at tax time you can write that off as a charitable contribution.
Virginia allows a deduction of 18 cents per mile for charitable driving, so if you’re filing in Virginia be sure to get your extra 4 cents per mile deducted from your Virginia taxable income.
In order to take the deductions for work/business miles or charitable driving miles you will need to itemize your deductions on Schedule A. Moving expenses are an adjustment to income, so you don’t need to use schedule A in order to deduct those miles.
What If I am Reimbursed?
If your employer reimburses you for mileage you may still be able to deduct vehicle expenses at the standard mileage rate. It all depends on the manner of the reimbursement. If your employer uses an accountable plan to reimburse employees for travel, then your mileage won’t be deductible. Many employers, however, don’t use an accountable plan. Many will just bump up an employee’s salary to compensate them for using their personal vehicle for company business. In that case, you are not actually being reimbursed for mileage, and you can take the deduction. (If you aren’t sure whether or not you are reimbursed on an accountable plan, ask your employer.)
The IRS requires taxpayers to have adequate records to substantiate their mileage deductions. What exactly does adequate records mean?
For claiming vehicle expenses, including the standard mileage rate, the IRS wants you to have a mileage log. Your mileage log needs to have all of your business mileage logged and it also needs to have the total mileage that you drove for the year. (Even if you are claiming the standard mileage rate deduction the IRS wants you to report the total mileage for your vehicle for the year.)
There’s an app for that! In fact, there are several apps for tracking mileage. I use one known as MileIQ. It uses the GPS in my phone to track individual drives and distances. After I arrive at my destination I get a phone alert that a new drive was recorded. I tap the alert to open the app and review the drive. If it was a drive for personal reasons I swipe left. If it was for business I swipe right, and the drive is recorded as such. I typically just clear all my drives at the end of the day. It takes 30 seconds and I have a driving log.
The app is free for up to 40 drives per month. If you drive more than 40 times per month (and you probably do) then it’s $60/year. It is available from Apple and the Google Play store.
If you think you might be able to deduct some of your driving miles as a business, moving or charitable donation – but aren’t sure – contact me. We’ll get it sorted out.