In Dec 2019, the IRS announced that the standard mileage rate that will be used for deducting operating costs for automobiles would be 57.5 cents per mile. This is half a cent lesser than the previous year's value. This value comes in handy for business to pay tax-free reimbursements to their workers that used their vehicles for business purposes.
According to Craig Powel, CEO of Motus,
"The IRS business mileage standard is a go-to reimbursement method for many businesses and individuals, which makes software that helps companies manage mobile workers. The standard rate offers "a tax-free threshold that U.S. employers can reimburse up to without incurring taxes or defensibly demonstrating the business expense above the safe harbor rate."
Craig continued that when workers are under reimbursed, it could lead to lawsuits. Here are the 2020 changes which apply to the standard mileage rates for cars, vans and panel trucks:
Motus further revealed that what led to the decrease in 2020 rate was reduced fuel price, new vehicles with improved fuel economy. However, they concluded that these savings were offset by increased insurance rates and expensive vehicle repair costs.
The IRS further affirmed that taxpayers do not have to use the standard mileage rate. They can calculate the actual cost of using their vehicles. This, however, needs adequate documentation
The mileage rate for cars as of Jan 1, 2020, is 57.5 cents per mile driven for business. The mileage rate in this circumstance refers to the business purpose. In other words, when you drive your vehicle for business needs, you should be reimbursed for this. The value, however, depends on your status – whether self-employed or an employee.
Each year, there is a standard mileage rate from the IRS, which stands for the maximum value for tax-deductible mileage.
Your employer should reimburse you for the cost incurred from using your vehicle for business. The employer also sets the rate and rule with which they reimburse. The standard rate from the IRS is the limit for what is considered tax-deductible. If your employer pays you more than the standard IRS rate, it could be taxed.
A self-employed person can also use the IRS's rate to deduct the cost incurred from using your vehicle for business purposes.
The standard rates are an option to use as an employee. As a result, your employer can decide to use either or both the higher or lower value. In calculating your reimbursement, the rules from your employers prevail. As a result, be sure to work with it.
There are options for self-employed folks to calculate mileage deductions.
The 2017 Tax Cuts and Jobs Act (TCJA) came with a few modifications. As a result, the IRS does not consider moving expenses tax-deductible. For active members of the U.S. Armed Forces, this, however, does not apply
Any Alternative to the Standard Mileage Rate?
There is the option for you to calculate the actual cost you incurred while using your vehicle for business purposes. This is referred to as the actual expense method. You can either use this or the IRS's standard mileage rate. There is enough information on the IRS website that can guide you.
The best way to track your trip is with the use of Apps. Your phone's GPS will come in handy in tracking and recording your trips. These apps are useful as they store information and also give the option for classifying each trip based on the IRS's specification. This allows for smooth record.
In the absence of an app, you can keep a paper mileage log that the IRS provides. This is an old method set aside by the IRS way before the digital age
There is also the option to use Google Sheets or Excel Spreadsheet.
All in all, in deciding which to use, it is important to know the information that you need for your records to be relevant and accurate.
Flynn Financial Group Inc