The IRS announced that the standard mileage rate will increase to 54.5 cents per business mile driven in 2018. That is an increase of one cent from the 53.5 cents allowed in 2017. According to the IRS, “Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.”
When you use your car for business, driving between job sites (including your home office) is deductible. So is driving between your home and a temporary job site (where you will work for a year or less), job interviews, and conferences. Commuting between your home and a regular place of business generally isn’t tax deductible.
Standard Mileage Rates Versus Actual Expenses
There are two ways for you to calculate your automobile expenses. You can either claim $.54.5 per business mile driven in 2018 (increased from $.535 for 2017), or you can base your deduction on the percentage of miles your car was driven for business purposes multiplied by the actual costs incurred during the year. Allowable costs include gas, insurance, repairs, parking at home, and either your lease payments, or if you own your car, a factor for depreciation.
Generally, unless you drive your car relatively few miles each year with most of those miles being allowable business miles, you’re often times better off over time by basing your deduction on the standard mileage rate.
Let’s say you lease a car for $400 a month that you drive only 3,000 total miles during the year. And of those miles, 2,000 qualify as deductible business miles. By calculating your deduction based on the standard mileage rate, you’ll end up with a deduction of just $1,090 (2,000 business miles * $.545 per mile).
What would your deduction be based on the actual expenses incurred, assuming you spend $1,200 on insurance, $.10 per mile driven for gas, and $1,200 on parking at home? Based on $7,500 of total automobile expenses (including the lease payments), multiplied by two-thirds (2,000 business miles divided by 3,000 total miles), your allowable deduction for your automobile expenses jumps to $5,000 – almost five times the $1,090 allowed using the standard mileage rate.
Now let’s see what happens if you drive 20,000 total miles during the year. Assuming your allowable business miles remains at 2,000, you can either claim an automobile deduction of $1,090 based on the standard mileage rate, or $920 based on one-tenth (2,000 business miles divided by 20,000 total miles) of your actual automobile expenses incurred.
|Gas ($.10 per mile driven)||$300||$2,000|
|Parking at home||$1,200||$1,200|
|Business use % on 2,000
business miles driven
|Allowable deduction for
auto expenses based
on actual expenses
How to Claim The Deduction
Taxpayers who are compensated as employees are no longer eligible to claim these expenses as a miscellaneous itemized deduction since that deduction was eliminated effective 1/1/2018 as part of the Tax Cuts and Jobs Act of 2017. This deduction is slated to return in 2026. (2017 expenses are allowable under the old rules.)
Those taxpayers compensated as independent contractors will generally claim their allowable automobile expenses directly against their self-employment income. For these taxpayers, automobile expenses should be reported the Schedule C.
Moving, Medical and Charitable Miles
The use of an automobile in connection with a charitable activity is set by statute and is deductible at a rate of 14 cents per mile in 2018 and should be reported with other charitable contributions as an itemized deduction of the Schedule A. Charitable donations are still deductible in 2018.
The IRS did reset the 2018 standard mileage rate for qualified moves at 18 cents per mile, but the new tax rules eliminated the deduction for moving expenses as of 1/1/2018 through 12/31/25.
And don’t forget that medical related mileage is also deductible. For 2018, medical mileage is allowable at 18 cents per mile, and should be reported with all other medical expenses on the Schedule A.
Additional info and links about the standard mileage rates are available at https://www.irs.gov/newsroom/standard-mileage-rates-for-2018-up-from-rates-for-2017.