Most Americans are reliant on their car as their primary mode of transportation. Business owners often have a large fleet of vehicles that literally drive their success.
Tax-deductible travel is a vital part of your annual tax return, and it’s important to keep track of exactly what you can claim for, and how much you can claim per mile.
The IRS sets the standard mileage rate for 2017 based on several factors such as inflation, oil price, and total consumption, and they have lowered the deductible amount from the 2016 rate.
With the new rates set to come into effect on January 1, it’s important that you adjust your returns and tax forecasts with the appropriate figures. Here’s an overview of the changes that are set to affect you.
Standard Mileage Rate Changes
You can claim back on vehicle use in several industries, and different types of vehicle use. The rates for vehicles used for transporting furniture when moving, transferring medical goods and supplies, or using your car for business are changing.
It’s important to note that in this instance, the definition of a vehicle is a panel truck, car, van or pickup.
Here are the new rates:
- The rate for business miles travelled is down by half a cent, from 54 cents to 53.5 cents per mile driven for business purposes.
- If you’re driving your vehicle for medical or moving reasons, you’re looking at 2 cents less per mile – the new rate is 17 cents for every mile.
- Due to federal legislature, the standard mileage rate you can claim when servicing a charity remains fixed at 14 cents per mile.
A Complex Science
Although there are larger macro-economic factors at play around the global oil and fuel price, the IRS uses an annual study to make sure that the rate adjustments are as accurate as possible.
This means that you get the best, fairest rate possible.
Factors like the real costs of maintaining a vehicle, general depreciation figures, changes to average insurance premiums, the price of tires, and of course the actual price of gas all play a role.
In some instances, you are not allowed to claim tax back on the miles you travel for business purposes.
You may not apply if you have used the Modified Accelerated Cost Recovery System to gauge the value of a vehicle, for instance. You also can’t claim if you have already filed a Section 179 deduction on a specific car.
Most importantly, you can only apply the standard rate to four automobiles at once, so select the vehicles that do the most driving to maximize your benefit.
Apart from the actual standard mileage rate, you need to know a few other figures when calculating travel tax.
In 2017, 25 cents per mile is depreciation, a 1-cent rise from 2016.
In addition, the maximum standard cost per vehicle has been dropped to $27,900 for normal cars, and raised by $300 to $31,300 for your truck or van.
Use these figures when setting allowances for a fixed and variable rate plan. Remember, the standard rate only applies to money spent by the employer reimbursing an employee for the fuel expenses gathered while driving a vehicle to perform business functions.
It is a difficult adjustment to get used to, but factoring these slight adjustments to the standard IRS mileage rate and defining costs could save you a chunk of cash overall.
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