2021 IRS Business Tax Expensing for Auto Mileage

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2021 IRS Business Tax Expensing for Auto Mileage

For tax purposes businesses generally can deduct the entire cost of operating a vehicle when following tax rules guidance. Alternatively, they can use the business standard mileage rate, subject to some exceptions in the tax code. The mileage deduction is calculated by multiplying the standard mileage rate by the number of business miles traveled. Self-employed individuals also may use the standard rate, as can employees whose employers do not reimburse, or only partially reimburse, them for business miles driven.

Many taxpayers use the IRS business standard mileage rate to help simplify their recordkeeping. Using the IRS business standard mileage rate takes the place of deducting almost all of the costs of your auto. The IRS business standard mileage rate takes into account auto costs such as maintenance and repairs, gas and oil, depreciation, insurance, and license and registration fees.

Beginning on January 1, 2021, the IRS standard mileage rates for the use of an auto (also vans, pickups or panel trucks) is:

          • 56 cents per mile for business miles driven, down from 57.5 cents for 2020
          • 16 cents per mile driven for medical or moving purposes, down from 17 cents for 2020
          • 14 cents per mile driven in service of charitable organizations, no change from 2020

Mileage related to unreimbursed business expenses and moving expenses are limited to certain taxpayers as a result of the Tax Cuts and Jobs Act for tax years 2018 through 2025:

Business expenses:

              • Unreimbursed business expenses subject to a 2% floor as an itemized deduction have been eliminated.
              • Eligible taxpayers for business mileage expenses:
          • State and local government officials paid on a fee basis, and certain performing artist

The IRS standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The IRS rate for medical and moving purposes is based on the variable costs from analysis.

Taxpayers may have the option of calculating the IRS actual costs of using their autos rather than using the IRS standard mileage rates. If instead of using the IRS standard mileage rate you use the IRS actual expense method to calculate your vehicle deduction for qualifying business miles driven, you must maintain very careful records of qualifying expenses. When using this IRS method, it is vital to keep track of the IRS actual costs during the year to calculate your deductible vehicle expenses. One of the most important tools is a mileage logbook. Business with auto fleets must apply actual costs for mileage expenses.

If you have additional questions on 2021 IRS business tax expensing for auto mileage, please contact our office.

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