Save money on your taxes with this fuel allowance method
Every year the IRS publishes the new amount for the deductible or allowance on fuel for your vehicle if you fall under their assigned situation.
There are three main categories for the allowance.
- Business miles
- Medical Miles
- Charity Miles
These are the big three categories that are covered each with a different amount of money per mile.
The IRS uses an independent contractor to perform an annual study of the fixed and the variable costs for operating an auto to finally determine the Standard Mileage Rates for Business, Medical and Charitable miles.
Business Miles get a deduction
Every year the IRS allows us to take so many cents per mile driven for business use (business standard mileage rate) from our tax bill. (When the amount of money per mile is decided on for the year the IRS will notify me, and I will put it here right away).
These are the highest paid miles on record for an allowance from the IRS.
The business standard mileage rate cannot be used for more than four vehicles used simultaneously.
Mileage Rate for business in 2013 is $0.56 1/2 cents per mile.
Mileage Rate for business in 2014 is $0.56 cents per mile.
Mileage Rate for business in 2015 is 57.5 cents per mile!
Mileage Rate for business in 2016 is 54 cents per mile.
Mileage Rate for business in 2017 is 53.5 cents per mile.
The part of the amount of your business mileage rate treated as vehicle depreciation with business miles is:
By being in the proper category you can get the allowance. If you are a sole proprietor, you are usually OK to get the deduction, as long as you follow the rules for business miles driven etc.
You will need to use a Mileage Log of some sort to show the IRS what miles you drove and where you went etc. Download the free Mileage Log.
If your vehicle is paid for, has a low cost of operation and gets a good MPG, then it might well be that this is the most lucrative way to deduct.
The law usually kicks in for the year on January 1 of the year and covers cars, vans, pickups and panel trucks.
In the year 2011, and a very few other years, we were showed a change mid year at the June 30, July 1 point. It was an increase for the second half of the year due to the elevated cost of fuel etc.
This change and yearly changes are figured due to a study by the contractor Runzheimer International, working for the IRS.
There is also the Actual Expense method. That method is described more thoroughly in the web page linked in the previous sentence. If you are uncertain about which is the best method, then do a little math and figure out the numbers for each for the year. There will be your answer as to which will pay off best.
There are rules about changing from one method to another so be aware of that.
Here is a bonus for Mileage Allowance:
You can deduct these expenses, as well.
- Applicable registration fees and any taxes. (By the percentage of business use)
- Parking fees and tolls. (During business use)
- Loan Interest that you might have on the car. (By the percentage of business use)
You can not deduct
- Lease Payments
- Actual auto expenses
- Depreciation as a separate deduction.
The IRS tells us "A taxpayer can not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle."
Here is an example of some math:
Joe has an 8 year old economy car that is paid in full. the car get's 20 miles per gallon.
That person will drive two hundred miles and use 10 gallons of gas. Let's say the gas costs $2.25 per gallon (the high side for most areas). The cost of the fuel is $11.25 per hundred miles and $22.50 for two hundred.
The mileage deduction that could have been taken here in the year 2016 it was $54.00 for a hundred mile trip.
Ok let's extrapolate - Every month the person drives 1000 business miles. That is roughly 250 miles a week.
The deduction is $540.00 for that month alone.
Drive the same miles every month = $6,480.00!
The cost of fuel for the year was $1,350.00.
You are now ahead by $5,130.00. There you have a nice deal!
In 5 years you are ahead of the game by $25,650.00 You have to love that!
There is the Medical Mileage Rate which is somewhere near half of the business mileage rate.
If you have done some driving for charity, you can take a Mileage Deduction for Charity at a different, but dramatically lower rate.