What Are the Standard Mileage Deduction Rates & Rules?

Photo: GoSimpleTax

What Is Mileage Deduction?

A mileage deduction refers to the money paid back to an individual who uses their private vehicle for business purposes. The deduction is usually in the form of tax relief or rebate.

You can calculate your mileage deduction, either using the standard IRS mileage rate or by working out your actual expenses.

GoFar
Ultimate Vehicle Mileage Tracker. Never stress about mileage tracking again!

The standard mileage rate is a universal rate that covers all the costs associated with tax-deductible mileage. It is set based on an annual study of the fixed and variable costs of owning and running a vehicle in the U.S.

The IRS mileage rate is subject to revision and changes every year to suit prevailing circumstances better.

There is no limit to the deductions you can claim on your taxes. All you need to do is follow all the IRS rules, and have a compliant mileage report.

What is the Standard IRS Mileage Rate for 2020?

According to Notice 2020-05 from the IRS, the standard mileage rates for the use of a car in 2020 are:

  • $ 0.575 per mile for business usage
  • $ 0.14 per mile for charitable work
  • $ 0.17 per mile for medical transport expenses
  • $ 0.17 per mile when moving for military personnel

Note that the IRS mileage rates are optional. They merely serve as a guideline for mileage reimbursement and deductions.

The IRS does not require anyone to use these rates when working out their mileage deductions.

Mileage Reimbursement vs. Mileage Deduction

Mileage reimbursement refers to the amount an employer or client pays you for your business mileage.

Mileage deduction, on the other hand, refers to the write-off you claim on your annual tax returns for your business mileage.

Both mileage reimbursement and deduction offer tax breaks that help offset the costs of operating your vehicle for work. And for both, you will need to track your mileage or maintain a mileage log to meet the IRS documentation requirements.

Note that the IRS doesn’t require employers to reimburse you for your business mileage. There is no federal law that mandates the IRS mileage rate for non-governmental employees.

What are the Rules of Mileage Deduction?

The IRS is very particular about when you may claim a mileage deduction from your business miles. Here are the drives the IRS considers tax-deductible mileage.

  • Drives from your primary place of business to another place of business
  • Trips for business-related errands including going to the bank, supply store or post office
  • Drives to meet clients or vendors, including rides to dinner, coffee or drinks
  • Rides to and from the airport for business trips
  • Drives to and from odd job locations, this includes things like babysitting, pet care and more
  • Drives to temporary work locations you expect to and will last less than one year

Further to these, the IRS provides a more extensive guideline for deductible business mileage and expenses.

The table below details some of the allowable mileage expenses:

Travel Expenses tables
Screenshot from: IRS.gov

How to Calculate Your Mileage Deductions

To claim your mileage deductions, you will need an accurate record of your mileage throughout the year.

In 2020, you can write off $0.575 for every business mile you drive. You have two options for working out your mileage deduction.

  1. The standard mileage rate
    Here, you calculate your mileage deductions by multiplying your mileage for the year with the standard IRS rate for that year.
    For example, if your total business mileage is 20,000 miles:
    $0.575 x 20000 = $11,500
  2. The actual expense method
    Here you keep track of the actual expenses incurred while using your car for business-related travel. Your employer can then reimburse you for these expenses.

How Many Miles Can You Claim on Your Taxes?

There is no limit to the number of miles you can claim on your taxes, as long as you can substantiate them.

However, some claims may cause concern with the IRS; these include:

  • Having round numbers like 20,000 miles on your claim
  • Claiming unusually high numbers for miles
  • Claiming 100 percent of your miles for business

Limitations on the Standard IRS Mileage Rate

The IRS has restrictions on who can use the standard IRS mileage rate. For those who don’t qualify to use the standard rate, they may use the actual expense method instead.

To use the standard rate, you must use it during the first year you use your car for business. If you don’t, you will be stuck using the actual expense method. But if you use the standard mileage rate in the first year, you can switch between the two modes.

Note that with the standard IRS mileage rate, you cannot deduct your actual operating costs. The IRS factors in all these items are well as depreciation when determining a suitable standard rate for any given year. Furthermore, you cannot deduct your parking tickets or the cost of parking your car at your place of work.

TCJA Limitations on Itemized Deductions

The Tax Cuts and Jobs Act (TCJA) briefly suspended miscellaneous itemized deductions contingent on the 2 percent floor until 2026. The suspension covers most itemized deductions for unreimbursed business expenses like the cost of driving for work, and travel expenses.

However, the suspension does not apply in certain circumstances. Rev. Proc. 2019-46 modifies Rev. Proc. 2010-51 concerning the following items:

You cannot use the IRS mileage rate to claim a miscellaneous itemized deduction during the suspension period

  • You cannot claim miscellaneous itemized deductions for parking fees and tolls for the business use of your car
  • The depreciation used in calculating the basis reduction for your car when used for work is adjusted
  • Your paid mileage allowance is treated as paid under a non-accountable plan regardless of whether you incur deductible expenses.
  • Your deductible expenses when computing your adjusted gross income can use the standard IRS mileage rate. But you cannot claim an itemized deduction for unsubstantiated amounts.

Rev. Proc. 2019-46 outlines the guidelines on how much of your travel expenses an employer can reimburse using mileage allowance. However, you can substitute it with the actual expense method if you maintain an adequate record of your travel expenses.

FAVR Guidelines and Mileage Deductions

The Fixed and Variable Rate (FAVR) allowance plan is a reimbursement plan that outlines the rules for mileage reimbursement for businesses that choose not to use the standard mileage rate.

The plan takes into account the costs of owning and running a car, such as depreciation, insurance, and taxes. These are then adjusted according to the percentage of use of the car for business, and location-specific costs for more accurate mileage reimbursement payments.

The policy reimburses employees through a combination of monthly allowances and mileage reimbursements.

The FAVR comprises two payment methods:

  • Periodic Fixed Payments
    This includes the fixed costs of owning and operating a vehicle. These include depreciation, insurance, registration, and taxes.
  • Periodic Variable Payment
    This includes the operating costs of a car like gasoline, oil changes, and routine maintenance.

According to the FAVR plan, the cost of the vehicle should not exceed the maximum amount set by the IRS. In 2020, the amount is $50,400, unchanged from 2019.

One of the key advantages of the FAVR is that you can tailor it to your specific costs and actual mileage. In areas with higher operational costs, this is invaluable as the FAVR allowance may be more than the standard IRS mileage rate.

Rev. Proc. 2019-46 states that an employer can only give a FAVR allowance to an employee who can substantiate records showing at least 5000 business miles over a given tax year. For a higher mileage, then the employer may use 80 percent of their estimated annual business mileage to calculate the FAVR.

If the FAVR covers an employee for less than a year, the employer can allocate these limits every month.

How to Track Your Mileage

No matter your preferred mileage deduction method, an accurate mileage tracking system is vital.

GOFAR provides one such system. It offers an IRS mileage rate compatible mileage tracker capable of tracking both your business and personal miles. And it makes it possible to tag and distinguish between the two.

GOFAR also offers you the ability to generate and export a spreadsheet record of your mileage for easier mileage deductions.

Visit gofar.co today to download the GOFAR mileage tracker.

Track Work Mileage With GOFAR

  • Log, calculate and export business expenses at the press of a button
  • No ongoing fees
  • Available on iOS and Android

Get GOFAR now

GOFAR mileage tracker app on a white smartphone screen
Check Car Buy Now