What Is Mileage Allowance?
Taxpayers have the option of using the IRS’s mileage allowance to calculate how much it costs to own and operate a car for tax-deductible purposes during a given tax year, but not the obligation. Taxpayers also have the choice of calculating the actual costs of using their vehicle rather than using the standard mileage rates. If you choose this approach, you must be sure to have documentation to prove the validity of your cost estimates.
Understanding Mileage Allowance
There are different categories of purposes for mileage allowances, each of which has a specific cent-per-mile deduction. In 2018, the IRS suggested deducting 54.5 cents per mile for all miles of business use, 14 cents per mile for the use of an automobile in rendering gratuitous services to a charitable organization, and 18 cents for certain medical uses and for moving.
IRS Regulation of Mileage Allowance
The IRS estimates its suggested mileage allowance based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based only on the variable costs.
If you are deducting mileage as a business expense on your income taxes, the travel must be strictly business-related, and commuting to and from work does not count as a business expense. Examples of qualified business driving include traveling to meet clients face-to-face, out-of-town business trips, or trips to buy supplies. If you combine your business travel with any sort of personal travel, like running errands, those miles are not deductible.
Deductibility of Moving and Medical Travel
A taxpayer may claim a mileage allowance for travel associated with obtaining medical care, and for moving residences. If you deduct miles for travel to medical care, those miles must be strictly related to the medical care, and driving those miles must be essential to accessing the medical care.
Expenses related to moving your primary residence are often tax-deductible as long as your move is closely related to the start of a new job, and you meet the distance and time tests. The distance test requires the distance between your new job and your former home to be more than 50 miles farther than your previous employer is from your residence. You also must work full-time for at least 39 weeks during the initial 12-month period of your relocation.