This year, the optional standard mileage rate used to calculate the deductible costs of operating an automobile for business went down. Why? Since gas prices are lower than last year, the cost of driving is less and therefore so is the deduction.
This year’s rate
Beginning on January 1, 2016, the standard mileage rate for the business use of a car (van, pickup or panel truck) is 54 cents per mile. For 2015, the rate was 57.5 cents per mile.
The cents-per-mile rate is adjusted annually by the IRS. It is based on an annual study commissioned by the IRS about the costs of operating a vehicle.
Current gas costs
On June 15, 2016, the national average price of a gallon of regular unleaded gas was $2.36 and it fell below $2 a gallon earlier this year. This is down from the average price of $2.80 per gallon a year earlier. (There are variations in fuel prices from one state to another so the per-gallon price in your state could be higher or lower.)
Two options for Auto Deductions
Option one: If you use a vehicle for business, you can generally deduct the actual expenses attributable to your business use. These can includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle, based on the percentage of business use. However, depreciation write-offs are subject to “luxury car” limits.
Option two: If you don’t want to track all of your actual vehicle-related expenses, you may be able to use the IRS’s standard mileage rate. With this approach, you don’t have to account for all your actual expenses, although you still must record certain information, such as the mileage for each business trip, the date and the destination.
Not all taxpayers can use the cents-per-mile rate. It depends on how they’ve claimed deductions for the same vehicle in the past.
If you have questions about deducting mileage expenses in your situation, contact us.