The standard mileage rates for 2019 have just been released by the IRS and small businesses will see both a jump in the mileage standard for business travel and another big change thanks to the Tax Cuts and Jobs Act.
Mileage Rates From The IRS for 2019
The IRS mileage rates for 2019 for using a vehicle for business purposes are:
- 58 cents per mile for each business mile, up 3.5 cents from 54.5 cents for 2018;
- 20 cents per mile to cover moving or medical purposes, up 2 cents from 18 cents for 2018;
- 14 cents per mile driven for charitable organizations. This rate is set by statute and doesn’t vary.
The IRS mileage rates for 2019 apply to miles driven starting January 1, 2019. These standard mileage rates are important because they provide small businesses with a framework for calculating deductible costs for operating a vehicle for business purposes.
Tax and Jobs Cuts Act
The Tax Cuts and Jobs Act has also had a major impact on where the standard mileage deduction rate can be used. Under the new law, no claim is possible for a miscellaneous itemized deduction on employee travel expenses that are unreimbursed. There is also no deduction for employee moving expenses with the exception of Armed Forces members on active duty to a permanent change of station under orders.
The IRS explains, “The Tax Cuts and Jobs Act also suspends all miscellaneous itemized deductions that are subject to the 2 percent of adjusted gross income floor. This change affects un-reimbursed employee expenses such as uniforms, union dues and the deduction for business-related meals, entertainment and travel”
The IRS sets these rates every year for small businesses including medical and moving expenses after looking at the fixed and variable costs of operating a vehicle for business. The numbers are calculated based on averages of what it costs to drive a vehicle for business. The factors include maintenance, repair and the amount of gas used. It’s important to remember the variable rate only applies for moving and medical expenses.
Actual Costs Versus Standard Mileage Rate
The standard mileage rate from the IRS isn’t the only way to calculate the deductions you can have for business vehicle use. Other methods include calculating the actual costs for operating a vehicle for business. However, the IRS is clear adequate records need to be kept. Using your actual expenses is usually more paperwork for people who use their vehicle for business and small business owners.
The standard mileage rate can also be used to reimburse employees for the miles they drive using their personal vehicle for business. Many businesses add memos or additions to employee handbooks outlining the rate and method of reimbursement. To calculate the reimbursement, small business owners need employees to document the miles they drive for business and then multiply that number by the reimbursement rate.
Small businesses should also keep in mind there are some situations where you cannot use the standard mileage rate and these include:
- If the vehicle is a taxicab or some other type of car for hire
- In fleet situations where there are five or more vehicles being used at the same time.
- If the vehicle is being used to deliver mail in rural areas and gets qualified reimbursement under Publication 463 Chapter 4.
- If you claim depreciation or a deduction under section 179.
Here’s a link to the actual announcement from the IRS. There’s also some information about the amounts a taxpayer needs to use to calculate deductions concerning depreciation. Finally, there are details about the maximum standard automobile cost a taxpayer may use under fixed and the variable rate (FAVR) plan.
Here’s a good tip if you haven’t started using any of these methods. It’s a good idea to keep track of the costs in the first year you use any vehicle for business purposes. That way, you’ll have a baseline to determine if that deduction is larger than using the standard mileage rate.
- IRS mileage rate for 2018
- Official IRS notice for 2017 mileage rates
- 2016 mileage rate for miles driven in 2016
- 2015 mileage rate for miles driven in 2015
I feel like there are going to be a lot of changes we have yet to realize with the new tax law.
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