As of January 1, 2017, the Internal Revenue Service (IRS) initiated decreases to the standard mileage rates (SMR) used to calculate the deductible costs of operating a vehicle for business, charitable, medical or moving purposes. The new 2017 mileage rates rates apply to miles driven in cars, vans, and pick-up trucks.
Changes made to rates for 2017 mileage rates are:
- 53.5 cents per mile for business miles driven, down a half a cent from 2016
- 17 cents per mile driven for medical or moving purposes, down 2 cents from 2016
- 14 cents per mile driven in service of charitable organizations, remains unchanged
After studying the fixed and variable costs of operating a vehicle, the IRS sets mileage rates each year by calculating expenses using the average cost of driving a vehicle, factoring in gas usage, maintenance, and repair. The variable rate only applies to medical and moving expenses.
If you are a business owner or an employee who uses your vehicle for work, there are two options: use the SMR or track actual expenses. However, it also depends on the type of vehicle used for business purposes. The SMR is the easier of the two options but still requires tracking the number of miles along with the total miles driven along with dates, destinations, and purpose of trip. As the second option, you are required to track actual expenses and keep meticulous records for everything from gas, oil changes, insurance, repairs, or anything related to your business vehicle. The option may yield a larger deduction, but demands detailed record keeping.
The type of car you drive can also impact which method you choose. For example, if you drive a small car that uses less gas, you may benefit from the standard rate. On the opposite side, a larger vehicle, such as a utility van, costs more to operate and, as a result, using actual expenses may be the best option. If it’s your first year in tracking cost for your business vehicle, track everything and come tax time, run the numbers and see which method provides the best benefit.
As you prepare your 2016 returns, remember to refer to the milage rates for last year. The IRS has been known to update rates mid-year based on gas price fluctuations. Employees should reference their employee handbook to determine the employer’s reimbursement policy for mileage racked up on their person vehicle. Employers should take the initiative to update written policies to reflect changes in the standard mileage rate for 2017 and notify employees impacted by these changes.
Take a moment to review the changes, Notice 2016-79, posted on IRS.gov. This information contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard vehicle cost a taxpayer may use to compute the allowance under a fixed and variable rate plan. If you have questions about standard mileage rates, tracking expenses, or 2017 mileage rates, reach out to us at KDuncan and Company.
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