mileage deductions | Nesteggg Accounting

Change to Standard Mileage

If your business or charity reimburses your employees or volunteers for their mileage, there are some changes as of January 1. The Internal Revenue Service issued the 2020 optional standard mileage rates (PDF) used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on January 1, 2020, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

57.5 cents per mile driven for business use, down one half of a cent from the rate for 2019,
17 cents per mile driven for medical or moving purposes, down three cents from the rate for 2019, and
14 cents per mile driven in service of charitable organizations.

The business mileage rate decreased one half of a cent for business travel driven and three cents for medical and certain moving expense from the rates for 2019. The charitable rate is set by statute and remains unchanged.

Here’s the 411 on who can deduct car expenses on their tax returns

Taxpayers who have deducted the business use of their car on past tax returns should review whether or not they can still claim this deduction. Some taxpayers can. Some cannot.

Here’s a breakdown of which taxpayers can claim this deduction when they file their tax returns.

Business owners and self-employed individuals
Individuals who own a business or are self-employed and use their vehicle for business may deduct car expenses on their tax return. If a taxpayer uses the car for both business and personal purposes, the expenses must be split. The deduction is based on the portion of mileage used for business.

There are two methods for figuring car expenses:

1. Using actual expenses

These include:
- Depreciation
- Lease payments
- Gas and oil
- Tires
- Repairs and tune-ups
- Insurance
- Registration fees

2. Using the standard mileage rate

Taxpayers who want to use the standard mileage rate for a car they own must choose to use this method in the first year the car is available for use in their business.
Taxpayers who want to use the standard mileage rate for a car they lease must use it for the entire lease period.
The standard mileage rate for 2018 is 54.5 cents per mile. For 2019, it‘s 58 cents.

There are recordkeeping requirements for both methods.

Employees
Employees who use their car for work can no longer take an employee business expense deduction as part of their miscellaneous itemized deductions reported on Schedule A. Employees can’t deduct this cost even if their employer doesn’t reimburse the employee for using their own car. This is for tax years after December 2017. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions subject to the 2% floor.

However, certain taxpayers may still deduct unreimbursed employee travel expenses, this includes Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials.

More information:
Publication 535, Business Expenses

These summer actions might benefit taxpayers who itemize

Summer is a season when people have fun, yet get things done. From buying a new house to cleaning their old one, taxpayers who itemize their deductions may be doing things this summer that will affect the tax returns they file next year.

The higher standard deduction means fewer taxpayers are itemizing their deductions. However, taxpayers who still plan to itemize next year should keep these tips in mind:

Deducting state and local income, sales and property taxes. The deduction that taxpayers can claim for state and local income, sales and property taxes is limited. This deduction is limited to a combined, total deduction of $10,000. It is $5,000 if married filing separately. Any state and local taxes paid above this amount can’t be deducted.
Refinancing a home. The deduction for mortgage interest is also limited. It’s limited to interest paid on a loan secured by the taxpayer’s main home or second home. For homeowners who choose to refinance, they must use the loan to buy, build, or substantially improve their main home or second home, and the mortgage interest they may deduct is subject to the limits described in the next bullet under “buying a home.”
Buying a home. People who buy a new home this year can only deduct mortgage interest they pay on a total of $750,000 in qualifying debt for a first and second home. It’s $375,000 if married filing separately. For existing mortgages, if the loan originated on or before Dec. 15, 2017, taxpayers continue to deduct interest on a total of $1 million in qualifying debt secured by first and second homes.
Donating items and deducting money. Many taxpayers do a good summer clean-out during the warm months. They often find unused items in good condition they can donate to a qualified charity. These donations may qualify for a tax deduction. Taxpayers must itemize deductions to deduct charitable contributions and must have proof of all donations. Taxpayers can use the Interactive Tax Assistant to help determine whether they can deduct their charitable contributions.
Deducting mileage for charity. Driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2019.
Reporting gambling winnings and claiming gambling losses. Taxpayers who itemize can deduct gambling losses up to the amount of gambling winnings. They can use the Interactive Tax Assistant to find out more about reporting gambling winnings and losses next year.

Change to Standard Mileage

Here’s the 411 on who can deduct car expenses on their tax returns

These summer actions might benefit taxpayers who itemize

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