The optional standard cents per mile rate for 2020 decreased by one-half cent, to 57.5 cents per mile. This deduction individuals use to calculate the deductible costs of operating an automobile for business. As a result, you might claim a lower deduction for vehicle-related expense for 2020 than you can for 2019.
Businesses can generally deduct the actual expenses attributable to business use of vehicles. This includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle. However, in many cases depreciation write-offs on vehicles are subject to certain limits that don’t apply to other types of business assets.
The cents per mile rate for 2020 comes into play if you don’t want to keep track of actual expenses relating to your vehicle. With this approach, you don’t have to account for all your actual expenses, although you still must record certain information. These requirements include the mileage for each business trip, the date, and the destination.
Using the mileage rate is also popular with businesses that reimburse employees for business use of their personal vehicles. Such reimbursements can help attract and retain employees who drive their personal vehicles extensively for business purposes. Why? Under the Tax Cuts and Jobs Act, employees can no longer deduct unreimbursed employee business expenses. Examples include business mileage, on their own income tax returns.
If you do plan on using the cents per mile rate for 2020, be aware that you must comply with various rules. If you don’t, the reimbursements could be considered taxable wages to the employees.
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. It was 58 cents for 2019 and 54.5 cents for 2018.
There is an annual adjustment to the business cents-per-mile rate. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle. Variable costs include gas, maintenance, repairs and depreciation. Occasionally, if there’s a substantial change in average gas prices, the IRS will change the mileage rate midyear.
There are some situations when you can’t use the cents-per-mile rate. In some cases, it partly depends on how you’ve claimed vehicle deductions for the same vehicle in the past. In other cases, it depends on if the vehicle is new to your business this year or whether you want to take advantage of certain first-year depreciation tax breaks on it.
As you can see, there are many factors to consider in deciding whether to use the mileage rate to deduct vehicle expenses. Our accounting firm in Mundelein, IL can help if you have questions about tracking and claiming such expenses in 2020. We can also assist in tracking and claiming these same expenses on your 2019 income tax return.