The IRS has recently released the fluctuations for the optional business standard mileage reimbursement rates for 2015.
The business standard mileage rate has increased to 57.5 cents (up from 56 cents for 2014). The 2015 standard mileage rate for medical and moving expenses decreased slightly to 23 cents (down from 23.5 cents for 2014). The charitable mileage rate, however, is set by statute at a flat rate of 14 cents per mile without an inflation adjustment each year. These revised rates apply to deductible transportation expenses paid or incurred for business or medical/ moving expenditures, or qualified charitable miles driven, on or after January 1, 2015.
The IRS works with an independent contractor to establish the business, medical and moving expense standard rates. The IRS and the independent contractor take into account different types of fixed and variable costs of operating an automobile, such as fuel costs and maintenance expenses. However, the decline in fuel prices experienced in 2014, were not reflected in the business standard mileage rate for 2015. Practitioners have speculated that this lack of adjustment could indicate that the IRS does not expect the low gas prices to last. Alternatively, if prices continue to decline, the IRS could issue a mid-year adjustment of the rate during 2015.
The standard mileage rates for business use, medical and moving expenses, and charitable usage, may be used by an employee or self-employed taxpayer to compute the allowable deduction attributable to his or her business use of a car. Taxpayers are also allotted the option of calculating the actual cost of operating a vehicle for business and deducting that amount. However, using the standard mileage rate is the simplest method of calculating automobile expenses because it simplifies the amount of required record keeping.
The business standard mileage rate is designed to take into account costs such as maintenance and repairs, gas and oil, depreciation, insurance, and license and registration fees. Because depreciation and other costs are already factored into the standard rate, taxpayers who choose to use the standard mileage rate may not deduct these individual costs in addition to the standard rate.
They are allowed to deduct any business-related parking fees or tolls because those are not included in the standard rate. However, when using the standard mileage rate taxpayers do not need to maintain detailed records on additional costs they only need to keep a log of their business miles. To calculate this deduction, the taxpayer takes the standard mileage rate and multiplies it by the amount of business miles traveled.
Taxpayers must meet several requirements before they may use the business standard mileage rate. They first must be self-employed or an employee who has incurred automobile costs for business that were not reimbursed by the employer. The tax payer must also either own or lease the car that was used. All additional requirements are listed in the IRS publication 463, Travel, Entertainment, Gift, and Car Expenses.
Deductible transportation expenses are deemed ordinary and necessary costs of:
- Travel from one workplace to another in the course of your business
- Visiting clients or customers
- Attending a business meeting away from your regular workplace
- Traveling from your home to a temporary workplace when a taxpayer has one or more regular places of work.
Fixed and variable rate (FAVR) allowance
Taxpayers may also use the fixed and variable rate allowance to substantiate automobile expenses. The FAVR method has the employer reimburse the employee for expenses with a mileage allowance using a flat rate or stated schedule that combines periodic fixed and variable payments. When computing the allowance under a FAVR plan, the standard automobile cost may not exceed $28,200 for automobiles; but the rate increases to $30,800 for trucks and vans (up from $30,400 for 2014).
If you have any questions about the new mileage rates, please contact us at 417-881-0145.