The Internal Revenue Service is the federal agency that is charged with collecting personal income taxes. The IRS considers all income to be taxable income unless it is specifically exempt from taxation by law or regulation. Individual taxpayers can legally reduce their income tax obligations by deducting certain expenses, including unreimbursed expenses incurred when using their cars for business purposes. The taxpayer may choose to deduct actual expenses, or she may use the standard mileage rate. Either way, she must document her expenses.
Standard Mileage Rate
The standard mileage rate is a fixed amount that the Internal Revenue Service allows taxpayers to claim instead of using actual expenses. This rate is adjusted from time to time to account for changes in the costs of operating a car, and rates are different for different purposes. The standard mileage rate for the 2011 tax year for business-related miles was 51 cents per mile. The standard mileage rate for medical or moving-related miles was 19 cents per mile. The standard mileage rate for charitable organization-related miles was 14 cents per mile.
You have the option of choosing to use either the actual expenses method or the standard mileage rate method during the first year you claim a deduction for business use of your vehicle. If you use the actual expenses method during the first year, you must continue to use this method for the life of the vehicle. If you use the standard mileage rate method during the first year, you may continue to use the standard mileage rate method during subsequent years or you may change to the actual expenses method. If you use the standard mileage rate for a leased vehicle, you must continue to use this method for the life of the lease.
Tax law requires you to keep adequate records to support your deductions for business use of your car. You should maintain any documents that prove you own or lease the vehicle that you used for business purposes. This may include a car title, loan documentation or lease agreement. You must also document the number of miles you drove. You must be able to produce a written record of your mileage, such as a travel diary or daily mileage log that includes the number of miles driven, destination and the business purpose for the miles driven. The IRS does not prescribe a particular format that this record must be in. It only needs to be in a format that permits you and the IRS to determine your correct taxes.
You must itemize your deductions if you wish to claim a deduction for unreimbursed employee business expenses, including expenses associated with using your car for the convenience of your employer. You would figure your standard mileage rate deduction on IRS Form 2106 and report this amount on Schedule A of IRS Form 1040. If you used your car for a business that you own, you would claim your standard mileage deduction on Schedule C of IRS Form 1040. Business owners can claim the standard mileage deduction whether they elect to itemize their deductions or take the standard deduction.
- Internal Revenue Service: Topic 510 -- Business Use of Car
- Internal Revenue Service: Publication 463 (2010), Travel, Entertainment, Gift, and Car Expenses
- Internal Revenue Service: Topic 514 -- Employee Business Expenses
- Internal Revenue Service: Recordkeeping
- Internal Revenue Service. "IRS issues standard mileage rates for 2020." Accessed Feb. 3, 2020.
- Internal Revenue Service. "Standard Mileage Rates." Accessed Feb. 3, 2020.
- Cision PR Newswire. "Runzheimer Data Sets 2017 IRS Business Mileage Rate at 53.5 Cents." Accessed Feb. 3, 2020.
- U.S. Government Publishing Office. "H. R. 606." Accessed May 1, 2020.
- Internal Revenue Service. "Publication 463 Travel, Gift, and Car Expenses," Pages 13-15. Accessed Feb. 3, 2020.
- Internal Revenue Service. "Publication 526 Charitable Contributions," Page 6. Accessed Feb. 3, 2020.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.