Posted by Fletcher Accounting and Tax Service Inc.

Introducing the New 2020 Mileage Rates

Introducing the New 2020 Mileage Rates

Starting January 1, 2020, the new standard mileage rates for use of a car, van, pickup or panel truck will be implemented. The new mileage rates that have been issued by the Internal Revenue Service (IRS) for this year 2020 will be as follows:

Purpose and Rates

  • Business = 57.5 cents per mile (down from 58 cents in 2019)
  • Medical/Moving = 17 cents per mile (down from 20 cents in 2019)
  • Service of charitable Org. = 14 cents per mile (the Congress is currently fixing)

Many of us are not aware that the reason behind the difference in the rates for medical or moving purposes and business is the basis on how they are calculated. We can calculate the standard mileage rate for business by considering the annual fixed and variable costs of operating an automobile, such as depreciation, insurance, repairs, tires, maintenance, gas, and oil. On the other hand, the only basis for the calculation of the rate for medical and moving purposes is the variable cost.

In order for us to identify the deductible expenses either business, moving, or charitable expense we will be using the standard mileage rate. We just need to multiply the standard mileage rate by the number of miles travelled.

In case you are using your car in multiple usages, you must have saved all the necessary records and pull back your personal travel costs. Take note that in calculating tax return you can use 1 or more rates. For instance, let us assume that the total drive you have in 2020 is 20,000 miles. Out of the total miles, 10,000 of those are for personal use, while 2,000 and 8000 are for charitable purposes, and medical purposes respectively. Calculating your deductions will be:

  • 10,000 personal miles x 0 = 0
  • 2,000 charitable miles x .14 = $280
  • 8,000 medical miles x .17 = $1,360

Based on the above example, the total deductible mileage related expenses would be $1,640 aside from additional associated charges like parking fees and tolls.  Use the applicable lines based on Schedule A in reporting your charitable and medical mileage deductions. Do not forget that medical miles are still subject to the minimum for medical expenses which is lowered by the congress into 7.5% (for 2019 and 2020).

With regard to business mileage, a taxpayer cannot be allowed to claim a miscellaneous itemized deduction for unreimbursed employee travel expenses in accordance with the tax reform law. The said deduction together with home office deduction was removed from Schedule A. All deductions that are precisely claimed by self-employed, freelancers, and independent contractors on a Schedule C will not be affected.

In the same manner, the majority of taxpayers are no longer permitted to claim a deduction for moving expenses. Nevertheless, the Armed Forces members that are actively on duty and are moving under orders to a permanent change of station is an exemption to this rule. 

In the event these rates do not properly correspond to your cost, you can choose to deduct the actual expenses instead of using the standard mileage rates. But it will require more effort and time.

Bear in mind that we are talking about the tax rates for the tax year 2020 for the return we will be filling in 2021. In the same way, the rates we will be using for the tax return we will submit in 2020 is the 2019 standard mileage rates. To know the 2019 tax rates, please visit the IRS website.

Preparing for the change

Choosing a system that concisely tracks your mileage is very necessary if you are planning to use your mileage for your tax purposes. You must have the correct record of your odometer readings throughout the whole tax season. If you are using your vehicle in your business it is advisable to monitor and record your mileage. Having proper records will constitute an accurate filled tax return form and you can easily provide appropriate documentation if in case the IRS requested it.

If you need help preparing your taxes, consulting a tax professional might be a good idea. You may be able to save time and money if you do so. A professional can also help you prepare the documents and organize the receipts so you can properly apply for a tax deduction. Along with keeping track of your mileage accurately, you also need to make sure your tax return is filled out accurately to avoid penalties or worst, not being able to claim a deduction. 

Fletcher Accounting and Tax Service Inc.
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