Do you regularly use a vehicle for business purposes? If so, here’s an important heads-up as we drive (pun intended) into the new year. The IRS has announced the business standard mileage rates for the 2020 tax season. This is a tax deduction that comes in handy for a lot of businesses, so it might offer a benefit for yours, too.
Below are the standard mileage rates for the use of a car (also vans, pickups or panel trucks), beginning January 1, 2020. This means they won’t come into play until 2021, when you’re filing your 2020 taxes. Note: These rates do not apply to the 2019 tax season. Find the rates for 2019 here.
Standard mileage rates for 2020
- 57.5 cents per mile driven for business use (down one half of a cent from 2019)
- 17 cents per mile driven for medical or moving purposes (down three cents from 2019)
- 14 cents per mile driven in service of charitable organizations (this is unchanged as it’s set by statute)
Read more on the IRS website: IRS issues standard mileage rates for 2020.
Why do these rates change?
The standard mileage rate for business use is calculated by using an annual study of the fixed and variable costs of operating an automobile. The rates for medical and moving purposes is based on variable costs.
Other important changes to note
You should also take note of these changes that might impact you and your business:
- Under the Tax Cuts and Jobs Act (TCJA), taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses, such as business mileage.
- Self-employed taxpayers, however, can deduct automobile expenses on their Schedule C, if they qualify as ordinary and necessary business expenses.
- You cannot claim a deduction for moving expenses unless you’re a member of the Armed Forces (this was repealed by the TCJA).
It’s important to point out that the standard mileage rate is an optional tax deduction. If you find that the standard mileage rates don’t accurately cover your vehicle costs, you can calculate the actual costs of using your vehicle instead. Consult your accountant to determine the best approach for your situation.
Why you should give a $#!% about changes to deductions
Tax deductions are a benefit your business should be taking full advantage of every year.
Standard mileage rates and meals and entertainment deductions can be especially useful if your business relies on frequent travel and nurturing client relationships. By lowering the amount you have to pay in taxes, you can keep more money from going out the door and invest more of it into your business.
Sometimes the hardest part, however, is keeping track of these deductions throughout the year. Be sure to keep your financial records organized and up to date all year. Then when the time comes to file your taxes once again, you’ll have your deduction information in order and ready to go.
Glad you made it this far! If this kind of stuff makes you suddenly feel very sleepy, no worries. You can reach out anytime to our team of accounting nerds if you have questions, and we’ll be happy to help.