The Internal Revenue Service (IRS) allows businesses the option to deduct a standard calculated amount of money for every mile business cars, pickup trucks, vans, and panel trucks drive for business purposes or to deduct the actual expenses of driving these vehicles for business. The opportunity to deduct a standard rate simplifies the tax reporting process.
The amount of the deduction varies from year to year. The IRS uses a complex combination of indicators to determine the yearly reimbursement rates. The chart below shows the changes in deductions over the past several years. These deductions are reported in CPM (cents per mile).
Year | Business | Moving | Medical | Charitable |
2012 | 55.5 CPM | 23 CPM | 23 CPM | 14 CPM |
2013 | 56.5 CPM | 24 CPM | 24 CPM | 14 CPM |
2014 | 56 CPM | 23.5 CPM | 23.5 CPM | 14 CPM |
2014 rates went into effect on January 1, 2014. They will remain in effect until the end of the 2014 tax year or until a time when the IRS decides to make adjustments. While charitable driving deductions have remained the same over the past three years, the other categories, business, moving, and medical, have gone up and down during the same span of time.
According to the IRS, though, there are a few important caveats to keep in mind before claiming business mileage deductions for your small business.
1) Businesses are allowed to claim the standard mileage rate for a maximum of four vehicles that are used simultaneously.
2) Businesses cannot use the standard deduction for mileage if they’ve already claimed Section 179 deductions on that particular vehicle.
3) Businesses are not allowed to use the mileage rate for vehicles once they’ve used any of the depreciations methods allowed under MACRS (Modified Accelerated Cost Recovery System).
If your business has employees who use personal vehicles for business errands, you are not required to reimburse those employees at the standard mileage rate in most states. However, most employers do offer reimbursement using the same standard mileage rate the IRS provides. In these instances, the reimbursement is not taxable income. It should not be treated as though it is. Instead, the idea is to make things square with the employee for allowing the use of his or her personal vehicle.
Business owners find that the standard deduction makes the reporting process easier. In many cases, it saves money, even if the deduction total is smaller, over the resources required to keep accurate records for reporting actual expenses, though that is always an option for businesses.
Small business owners have a lot to worry about when it comes to taxes. Please leave important decisions, such as these, in the capable hands of a qualified tax professional.
