Deducting your business mileage can be a useful way to lower how much you owe the IRS on your annual tax return, but the rules have changed for 2020, and it’s important that you know the new regulations for tax-deductible miles. Previously, employees were permitted to deduct their mileage, but this is no longer the case.
Who Can Claim Mileage Rates?
As of January 1st, 2020, the standard mileage rate dropped 0.5 cents; the first time it has fallen in three years. The new standard rate is 57.5 cents per mile. Under the 2020 tax code you can deduct mileage for:
- Business conducted by employees: As a business owner, you can use the rate of 57.5 cents per mile to make tax-free reimbursements to any of your employees who use their own vehicles for business use. This does not include mileage for commuting to and from work.
- Business conducted if you are self-employed: As a self-employed person, you can use the rate of 57.5 cents per mile when you are using your vehicle for purposes such as meeting with clients, picking up supplied for the business, and traveling to other work sites. If the same vehicle is used for business and personal use, only the miles used for business can be deducted. Alternatively, you can deduct your expenses for fuel, maintenance, and repairs. You may also deduct expenses for parking and tolls.
- Mileage when traveling to medical appointments: When you are driving to and from a doctor or hospital visits, or to the pharmacy to pick up prescriptions, you can use the rate of 17 cents per mile. This will count towards your medical deduction.
- Mileage when traveling as a volunteer for a non-profit organization: If you volunteer for a non-profit and you use your vehicle, you can make a deduction for that use at a rate of 14 cents per mile.
Don’t Forget to Document
Although deducting mileage can save you money on your tax return, don’t be tempted to claim mileage that you cannot document. If you are audited you will be required to show the IRS a log that shows dates of travel, destination, miles, and the reason for the travel. While logging every journey might seem like something of a chore, there smartphone apps, such as TripLog and MileIQ, that can make it much easier. Both of these apps detect when you are traveling and will log the details of each trip. This enables you to order your journeys by category and create a report for deductions.
Business Mileage Frequently Asked Questions
Q: I have a home-based business can I deduct mileage for trips to the bank and other work locations?
A: If your home is the base of your business, you can deduct the mileage for driving from your home office to other business locations. For example, meeting with a client. Trips to the bank, post office and trips made to pick up supplies may also be deducted. All journeys must be adequately documented.
Q: Is it preferable to use the standard mileage deduction or to deduct actual expenses?
A: The best way to decide on which option is best for you, is to calculate both to see which one gives you the highest deduction. One important thing to remember is that in order to use the standard mileage deduction, you must use it for the first year. In subsequent years, you can choose either option.
Q: I am leasing a car for my company business can I still use the standard mileage deduction?
A: If you are leasing a vehicle for business purposes, you can use wither the standard mileage deduction or actual expenses. If you choose the latter option, you may also deduct a percentage of the lease payments.
If you have decided to use the standard mileage deduction for business use of yours or your employees’ vehicle in 2020, remember to keep an accurate record of all journeys. When you use actual expenses, you must also document any expenses for repair, maintenance, and depreciation of the vehicle. You will need to provide this information to the IRS if your business is audited.