The IRS recently announced the 2019 optional standard mileage rates for business, medical and moving use. The rate for business use is based on an annual study of the fixed and variable costs of operating an automobile, while the rate for medical and moving purposes is based on variable costs only. The rate for using an automobile while performing services for a charitable organization is statutorily set (and has been 14 cents per mile for 20 years).
Beginning on Jan. 1, 2019, the standard mileage rates for the use of a car (or a van, pickup or panel truck) are:
• 58 cents per mile for business miles driven.
• 20 cents per mile driven for medical or moving purposes; and
• 14 cents per mile driven in service of charitable organizations.
For years 2018 through 2025, the deduction for moving is only allowed for members of the armed forces on active duty who move pursuant to a military order.
The business standard mileage rate is based on an annual study of the fixed and variable costs of operating an automobile, while the rate for medical and moving purposes is based on variable costs only. The rate for using an automobile while performing services for a charitable organization is statutorily set (and has been 14 cents per mile for 20 years).
Use of Actual Costs
Taxpayers have the choice of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates. In addition to the potential for higher fuel prices, the extension and expansion of the bonus depreciation as well as increased depreciation limitations for passenger autos under the new tax law make using the actual expense method worthwhile during the first year when a vehicle is placed into business service.
Keep in mind however; the standard mileage rates cannot be used if you used the actual method (using Section 179, bonus depreciation and/or MACRS depreciation) in previous years.
When employers reimburse employees for business-related car expenses using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee substantiates to the employer the time, place, mileage and purpose of the employment-connected business travel.
Unfortunately the new law eliminated employee business expenses as an itemized deduction for the years 2018 through 2025. Therefore, employees may no longer take a deduction on their tax returns for unreimbursed employment-related use of their cars. Members of a reserve component of the U.S. Armed Forces, state and local government officials paid on a fee basis and certain performing artists continue to be allowed to deduct unreimbursed employee travel expenses, including the business standard mileage rate, because they are deductible from gross income rather than as an itemized deduction.
Faster Write-Offs for Heavy Sport Utility Vehicles (SUVs)
Many of today’s SUVs weigh more than 6,000 pounds and are therefore not subject to the limit rules on luxury auto depreciation. Taxpayers who purchase a heavy SUV and put it into business use in 2019 can utilize both the Section 179 expense deduction (up to a maximum of $25,500) and the bonus depreciation (if the Section 179 deduction is claimed, it must be applied before the bonus depreciation) to produce a sizable first-year tax deduction. However, the vehicle cannot exceed a gross unloaded vehicle weight of 14,000 pounds. If you subsequently dispose of the vehicle before the end of the depreciation recovery period, a portion of the Section 179 expense deduction will be recaptured and must be added back to the taxpayer’s income (self-employment income for self-employed individuals). The future ramifications of deducting all or a significant portion of the vehicle’s cost using Section 179 should be considered.
The Boca Raton Accountants at East Coast Tax Consulting Group Can Help You Maximize Your Automobile Deductions
If you have questions related to the best methods of deducting the business use of your vehicle or the documentation required, please give this office a call at 561-826-9303 to speak with our Boca Raton accountants.