Did you know you could claim mileage deductions if you use your vehicle for business or any qualifying activity, according to the IRS? The process involves using IRS-approved mileage rates to calculate the deductible amount. Also, it is vital to note that the IRS updates the official rates regularly, as this helps ensure accuracy while claiming deductions on your taxes.
Today, we will take you through the recent changes the IRS made to the mileage rates and share some essential details to help you take advantage of this tax provision.
Let’s kick off by going over the mileage rates for 2023 and the updated 2024 rates.
IRS-approved Mileage Rates for 2023
For the tax year of 2023, your tax filings are generally due in 2024. Here are the applicable mileage rates to keep in mind:
- 0.22 dollars per mile if you use your vehicle for moving and medical purposes.
- 0.655 dollars per mile for business.
- 0.14 dollars per mile for charitable activities.
IRS-approved Mileage Rates for 2024
The IRS announced updated mileage rates for 2024 on December 14th, 2023. The updated rates are as follows:
- 0.21 dollars per mile if you use your vehicle for moving and medical purposes.
- 0.67 dollars per mile for business.
- 0.14 dollars per mile for charitable activities.
How Mileage Deduction Works for Entrepreneurs or Self-employed Individuals
Entrepreneurs or self-employed individuals can deduct all the expenses incurred from using their vehicle for business. Note that no requirements prevent you from using your vehicle for activities outside business. However, if your vehicle doubles as a ride for personal errands, it’s essential to log the mileage specifically accumulated due to business tasks. That is because the IRS allows you to deduct only business-related expenses.
You will only qualify to deduct mileage on your annual tax filings if you maintain documentation of your business-related travel and can prove your deduction claim.
How Mileage Deduction Works For Employers
You don’t have to reimburse employees for business mileage as an employer or business owner. However, doing so can attract workers to your business. You can adopt the IRS’s standard mileage rate for business travel as a straightforward reimbursement method. If you use this method, your employees must submit monthly travel logs to qualify for the deduction. In this instance, the mileage deduction is an employee’s reimbursement from you, their employer. Yet, you should not include it in their taxable income, as it doesn’t qualify as a benefit.
It is totally up to you to set the mileage deduction rate higher or lower than the IRS standard. But note that the IRS won’t allow you to claim deductions exceeding the approved rates.
You can include the total amount spent on employee mileage reimbursements in your business expenses to reduce your taxable income. This is where accuracy is crucial, as you would want to avoid getting into IRS issues because you filed inaccurate records. So, in your best interest and to ensure you pay the absolute legal minimum in taxes, consider working with a tax strategist or consultant.
How Mileage Deduction Works For Employees
While some states require employers to give employees mileage reimbursements, no such federal laws exist. Your employer can choose to reimburse you using the IRS standard rate, a fixed and variable rate (FAVR), or a monthly allowance.
The standard rate covers all vehicle costs for business driving, given you log your mileage, while a monthly allowance gives you immediate funds for expected business driving expenses. As its name suggests, FAVR splits costs into fixed and variable payments.
To get reimbursed, you need to provide detailed records of your business travels, including the date, destination, purpose, and miles driven. It is advisable to check with your employer for any specific record-keeping requirements.
Note: Reimbursements should not exceed the standard IRS rate to avoid being taxed as a benefit.
Claiming Tax Deductions with IRS Mileage Rates
To claim mileage deductions for moving, medical, or charitable activities, you must itemize your deductions on your tax return. The process involves filling out forms like Schedule A, Form 1040, and other corresponding schedules. If you are self-employed, you claim your mileage deduction as an expense on Schedule C.
Calculating Mileage Deductions: Standard Vs Actual Expenses
Standard Mileage Deduction and Actual Expenses are the two main methods of calculating mileage deductions. The following is a breakdown of how each method works.
Standard Mileage Deduction
Opting for the standard mileage deduction offers simplicity. You calculate your deduction by multiplying the total business miles traveled by the IRS-approved mileage rate. Remember, tracking your business mileage is essential for this method, and you must either own or lease a vehicle for business use to qualify.
Actual Expenses
Alternatively, if keeping seems too tedious, you might consider the actual expenses method. The process involves deducting the costs incurred from using your vehicle for business. These costs typically include:
- Vehicle depreciation
- Licensing fees
- Lease payments
- Registration fees
- Insurance
- Maintenance and repairs
Each method has pros and cons, depending on your preferences and unique business needs.
Do You Need Expert Help With Claiming Mileage Deductions?
As with most tax-related matters, navigating the rules surrounding mileage deductions can be tedious. Regardless, having a tax expert by your side will make the process stress-free. The best tax expert will put time and effort into understanding your needs and goals and devise an effective strategy to help you achieve them without breaking any tax laws.
Wondering where to find one?
Look no further than Tax Goddess!
At Tax Goddess, we specialize in helping our clients save big on taxes while ensuring maximum tax law compliance. So far, we have helped our clients save over 1 BILLION in taxes, and we are confident we can help you claim your mileage deductions, too!
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