December 23, 2020

IRS Updates Standard Mileage Rates for 2021

Standard mileage rates for 2021 have just been released by the IRS. One of the biggest differences in 2021 is a drop in the per mile rate for business use from last year.

The mileage rates for 2021 according to the IRS for vehicle use are as follows:

  • 56 cents allocated per mile on vehicles used for business purposes. This represents a drop of 1.5 cents from last year’s rate.
  • 16 cents per mile for moving and medical services. That’s a drop of 1 cent from the 2020 rate.
  • 14 cents per mile for those using their vehicles for charitable organizations. That’s the same as the the rate in 2020.

IRS Mileage Rate for 2021

These rates come into effect on January 1, 2021. These are standard mileage rates based on annual studies of the variable and fixed costs of motor vehicle operation. The medical and moving expenses are derived after looking at the fixed and variable costs for business vehicles. The numbers are based on averages of these costs. Different factors are involved including repairs, maintenance and gas used. The variable rate is applicable to medical and moving expenses.

Remember the Tax Cuts and Jobs Act

There are some other recent changes that should be noted by small business owners:

  • Under the Tax Cuts and Jobs Act, taxpayers will not be allowed an unreimbursed employee travel expense deduction. A moving expense deduction has also been eliminated.
  • There is one exception here. Active-duty armed forces members that are under order for a permanent change of station can claim the moving expense deduction.

Standard Mileage Rates Versus Actual Costs

The standard mileage rates aren’t the only way to calculate these deductions. In fact, there are some instances where the standard mileage rate is not allowed. The business standard mileage rate doesn’t apply to over five vehicles that are being used at the same time. Small business can find other limitations in section 4.05 of Rev. Proc. 2019-46. It’s irrelevant whether you own or lease these vehicles.

For taxpayers who use their vehicles for business, actual costs are an alternate method to claim deductions.

The actual car expenses include different factors like the depreciation as well as license fees and oil, gas, lease payments and registration fees.

Choosing Between the Two

There are some other important distinctions. Small businesses who decide to use the standard mileage rate need to implement it in the first year the vehicle is used for business. In the years following, they have the choice of either using actual expenses or the standard mileage rate.

Business Use Definitions

Taxpayers and small business owners need to draw a clear distinction between how they claim these deductions and how the vehicles are used for their business. For example, if your vehicle is used only for business, the entire cost of operating it is deductible.

If you use a vehicle for personal and business purposes, only the part that’s used for business can be deducted.

Records need to be kept for all deductions. Keeping detailed records helps you keep track of all of your deductible expenses. Not only can they help you earmark deductions for your vehicles, but good record-keeping helps you to gauge your business is progress. Learn more here.

Related Resources

Image: IRS

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