We depend on our vehicles to take us from Point A to Point B, but we don't want to break the bank in the process.
Still, most of us end up shelling out much more than we'd planned to keep our cars running in top condition. In fact, figuring in gas, insurance, repairs, and insurance, the average cost to own and maintain a car in 2019 is nearly $10,000 a year!
Would it be ideal if you could recoup some of those expenses come tax time? You might be able to do just that.
Specific IRS mileage guidelines dictate whether or not you qualify for a vehicle-related tax deduction and, if so, how to calculate it.
Today, we're diving into how this process works so you can stay informed as April approaches.
Ready to learn more? Let's get started!
Who qualifies for mileage reimbursement?
The IRS offers tax breaks for certain groups of people who use their vehicles throughout the year for specific, approved purposes.
These breaks are presented in terms of mileage rates, or a set number of cents per mile. Qualifying taxpayers can apply these rates toward a mileage-related deduction taken from their federal income tax.
First, let's discuss who's eligible to apply this IRS reimbursement.
Even if you use your vehicle every day for various purposes, you might still fall outside of the qualifications. So it's important to understand the guidelines before moving forward.
Do you depend on your personal car to travel for business purposes? If so, you may be able to deduct some of those vehicle-related expenses from your taxes. This applies to both employees as well as people who own their own business.
Some employees choose to calculate this deduction based on the actual expenses they incur, while others use the standard business mileage rate for that tax year.
Before filing, it's important to read the fine print details surrounding this clause. Different rules dictate who can claim this deduction and why.
For instance, you might travel for business, but your employer's policy doesn't reimburse you for travel expenses. In this case, you can't claim an itemised deduction for business travel costs or any other unreimbursed employee expenses.
The IRS does a great job of explaining the process of deducting all kinds of business expenses. You can find all of the information in Publication 535.
Throughout the year, you'll find it easiest to track all of your business-related expenses using an automated expense management software. In addition to being easier than manually writing everything down, it also helps ensure that you track every single eligible expense and that nothing falls through the cracks.
Keep in mind that you can only deduct unreimbursed, out-of-pocket expenses that you incur while using your car for work. In addition, the work must be for an organisation that the IRS recognises as charitable.
As with any business use, you can choose to itemise your deductions or take the standard charity-based mileage rate.
You can find out the specifics about how charity work affects your taxes in Publication 526, including:
- What kinds of organisations can receive charitable contributions
- Which contributions are deductible on your taxes
- How to report your contributions
- The amount of money you can deduct
- Which records to maintain
There are also tax regulations around donating a vehicle, so be sure to search for the sections that apply to you. If you volunteer with the same organization on a regular basis, they can add you to their non-profit expense management system to make it easier for you to track and report your activities.
In addition to business and charity use, you might be able to deduct some of your vehicle expenses if you use your car for medical purposes.
For instance, if you have a medical condition that requires regular trips to the hospital or doctor's office. It's important to track your mileage, as well as all vehicle-related costs associated with those visits.
You can choose to itemise your deductions or take the standard medical-based mileage rate. However, there's one caveat to keep in mind. To qualify for medical mileage reimbursement, you must also file for a medical-expense deduction on your taxes. To qualify for this deduction, your total medical or dental expenses must equal 7.5% or more of your adjusted gross income.
Moving use for military
Finally, you can also qualify for mileage reimbursement if you're an active member of the military moving in response to a military order or permanent station change.
In addition to other moving-related expenses, you can also apply a certain portion of the costs you incur on any car, van, pickup or panel truck used to facilitate the move. In this case, you'll apply the standard military mileage rate to calculate your deduction. Note that this deduction only applies to active members of the United States armed forces. The Tax Cuts and Job Act suspended any other job-related moving expenses from being tax-deductible, applicable from December 31, 2017, to January 1, 2026.
Standard IRS Mileage Rates for 2019
Now that we've covered who can apply for mileage reimbursement on their taxes, let's cover the specific rates that apply for each of these above categories.
These rates reveal how many cents per mile are applicable toward a federal income tax deduction. Using these figures, taxpayers can calculate their mileage-related deduction by multiplying their eligible mileage by the given rate for their category.
The IRS adjusts these rates every year, and even the slightest change can affect the accuracy of your form, so it's critical to keep up with the latest numbers.
How do they know which numbers to use?
They determine the rates for each category in different ways. For instance, mileage rates for medical and moving purposes are based on variable costs of using a car. On the other hand, a business mileage rate will take into account fixed costs, as well.
As stated, those who qualify can choose to calculate their specific deduction based on the actual costs required to use their vehicle (oil, gas, repairs, and more.) Or, they can use these rates to determine their standard mileage deduction.
The 2019 standard mileage rates are as follows:
- Business Use: 58 cents
- Charity Use: 14 cents
- Medical Use: 20 cents
- Active-Duty Military Moving Use: 20 cents
In every category but charity (which remained the same), these deductions represent increases over 2018 rates, which were as follows:
- Business Use: 54.5 cents
- Charity Use: 14 cents
- Medical Use: 18 cents
- Active-Duty Military Moving Use: 18 cents
How to file a mileage-related tax deduction?
You've read all of the IRS guidelines and understand your qualifications. Now, you're ready to prepare your forms.
If you're an individual filer, you'll use Form 1040 to complete your federal income taxes. However, the specific form you'll need to file your mileage deduction will vary depending on the category you're using to claim the deduction.
For instance, you'll reach for Schedule A if you're filing a medical expense deduction. The same form also applies if you're itemizing any volunteer work you've performed for a charitable organisation. However, you'll use Schedule C to report any business-related expenses if you're self-employed. It's easy to become confused when dealing with multiple kinds of forms to report different expenses. That's why it's smart to partner with a financial planner or tax expert when you're preparing to file.
Making mileage deductions work for you
Calculating your IRS mileage deduction doesn't have to be a pain. In fact, it can be a rewarding and straightforward process, as long as you have the right tools at your disposal.
Making the most of your returns can be easy when you leverage expense management resources to set well-defined expense approval workflows. When you know where every cent went and who it went to, you're that much closer to recouping a portion of what you spent as you traveled throughout the year.
Are you looking for a way to make sense of all the scattered receipts, scrawled notes, and inconsistencies? That's where we come in.
From expense reporting to mileage tracking, our expense reimbursement software does it all, helping everyone from enterprise CEOs to non-profit volunteers stay on top of their tax game. Start by learning more about us and our company mission. Then, contact us to schedule a demo, and let's take this next step together!