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The IRS announced the standard mileage rate used to calculate costs of operating a vehicle for business dropped by one-half cent to 57.5 cents per mile. The result of this change could lead to claim lower deductions for automobile-related expenses for 2020 than you could claim for 2019.
How do I calculate the deduction?
JLK Rosenberger’s corporate tax clients generally deduct actual expenses related to the business use of vehicles. These expenses may include insurance, repairs, gas, oil, tires, licenses, and vehicle registration fees. Additionally, you can claim depreciation for the vehicle. However, in many cases, depreciation claims on automobiles are bound by certain limits that don’t affect other types of business assets.
The other option is to use the cents-per-mile rate. This comes into use if actual car-related costs aren’t tracked. This approach does not require the driver to keep track of all actual expenses. However, some information must still be recorded, such as the mileage for each trip, the date, and the destination.
Ken Kathcart, CPA and Tax Partner at JLK Rosenberger says, “A cents-per-mile rate can be a popular option with companies choosing to reimburse employees for business use of their personal automobiles, especially under the Tax Cuts and Jobs Act which now prohibits employees from including unreimbursed business expenses, like mileage, on their personal income tax returns. These reimbursements can potentially attract and retain employees who drive their own vehicles for business, but keep in mind that you must comply with several rules, and noncompliance with these rules could cause the reimbursement to become taxable wages to your employees.”
What is the rate for 2020?
Beginning on January 1, 2020, the standard mileage rate for the business use of a car (van, pickup, or panel truck) is 57.5 cents per mile. This rate is lower than the 58 cents per mile in 2019 but still higher than 54.5 cents rate for 2018.
The cents-per-mile rate for businesses is adjusted annually and is based on an annual study commissioned by the IRS, which focuses on the fixed and variable costs of operating a vehicle. These costs may include gas, maintenance, depreciation, and repair. Occasionally the IRS will change the mileage rate midyear but often only in response to a substantial change in average gas prices.
Which option should I use?
Sometimes, there are situations when you are unable to use the cents-per-mile rate. This may be affected by claimed deductions for the same vehicle in previous years. The choice to use the cents-per-mile rate may also be influenced if the car is new to your business and whether you choose to use certain first-year depreciation tax breaks on the vehicle.
There are many factors to consider in deciding whether to use the mileage rate to deduct vehicle expenses. JLK Rosenberger can help with questions about tracking and claiming those expenses in 2020 — or with claiming them on your 2019 income tax return. For additional information, please call us at 949-860-9893 or click here to contact us. We look forward to speaking with you soon.