The IRS announced that the standard mileage rate will decrease to 54 cents per business mile driven in 2016. That is a decrease of approximately 6.1% from the 57.5 cents allowed in 2015. According to the IRS, “The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile.”
When you use your car for business, driving between job sites is deductible. So is driving between your home and a temporary job site, job interviews, and conferences. Commuting between your home and a regular place of business generally isn’t tax deductible.
Standard Mileage Rates Versus Actual Expenses
There are two ways for you to calculate your automobile expenses. You can either claim $.54 per business mile driven in 2016 (decreased from $.575 for 2015), or you can base your deduction on the percentage of miles your car was driven for business purposes multiplied by the actual costs incurred during the year. Allowable costs include gas, insurance, repairs, parking at home, and either your lease payments, or if you own your car, a factor for depreciation.
Generally, unless you drive your car relatively few miles each year, with most of those miles being allowable business miles, you’re often times better off over time by basing your deduction on the standard mileage rate.
Let’s say you lease a car for $400 a month that you drive only 3,000 total miles during the year. And of those miles, 2,000 qualify as deductible business miles. By calculating your deduction based on the standard mileage rate, you’ll end up with a deduction of just $1,080 (2,000 business miles * $.54 per mile).
What would your deduction be based on the actual expenses incurred, assuming you spend $1,200 on insurance, $.10 per mile driven for gas, and $1,200 on parking at home? Based on $7,500 of total automobile expenses (including the lease payments), multiplied by two-thirds (2,000 business miles divided by 3,000 total miles), your allowable deduction for your automobile expenses jumps to $5,000 – almost five times the $1,080 allowed using the standard mileage rate.
Now let’s see what happens if you drive 20,000 total miles during the year. Assuming your allowable business miles remains at 2,000, you can either claim an automobile deduction of $1,080 based on the standard mileage rate, or $920 based on one-tenth (2,000 business miles divided by 20,000 total miles) of your actual automobile expenses incurred.
|Gas ($.10 per mile driven)||$300||$2,000|
|Parking at home||$1,200||$1,200|
|Business use % on 2,000 business miles driven||66.67%||10%|
|Allowable deduction for
auto expenses based on actual expenses
How to Claim The Deduction
Taxpayers who are compensated as employees generally will claim their deductible automobile expenses as an unreimbursed employee business expense. These type expenses are reported on a Form 2106 and are deducted as a miscellaneous itemized deduction on the Schedule A. Keep in mind that miscellaneous itemized deductions are only allowable to the extent they exceed 2% of your income, and are not allowable when calculating the Alternative Minimum Tax (AMT).
Those taxpayers compensated as independent contractors will generally claim their allowable automobile expenses directly against their self-employment income. For these taxpayers, automobile expenses should be reported the Schedule C.
Other Deductible Miles
The use of an automobile in connection with a charitable activity is set by statute and is deductible at a rate of 14 cents per mile in 2016 and should be reported with other charitable contributions as an itemized deduction of the Schedule A.
You’ll deduct any mileage driven in connection with a qualified move at a rate of 19 cents per mile in 2016, down from 23 cents per mile in 2015, and should report that mileage along with your other allowable expenses on a Form 3903, Moving Expenses.
And don’t forget that medical related mileage is also deductible. For 2016, medical mileage is allowable at 19 cents per mile, and should be reported with all other medical expenses on the Schedule A.
Why lower rates for medical and charitable mileage? According to the IRS, “The rate for medical and moving purposes is based on the variable costs”, but omits the fixed costs allowed when calculating the business standard mileage rate.
Additional info and links is available at IR-2015-137, Dec.17, 2015