Patten and Company

Lower gas costs = lower business driving tax deductions

This year, the optional standard mileage rate used to calculate the deductible costs of operating an automobile for business went down. The reason? Compared with last year, the cost of driving is less because gas prices are lower.

Two options

If you use a vehicle for business, you can generally deduct the actual expenses attributable to your business use. This includes gas, oil, tires, insurance, repairs, licenses and vehicle registration fees. In addition, you can claim a depreciation allowance for the vehicle, based on the percentage of business use. However, depreciation write-offs are subject to “luxury car” limits.

But some taxpayers don’t want to keep track of actual vehicle-related expenses. Another option: You may be able to use the IRS’s standard mileage rate. With this approach, you don’t have to account for all your actual expenses, although you still must record certain information, such as the mileage for each business trip, the date and the destination.

This year’s rate

Beginning on January 1, 2016, the standard mileage rate for the business use of a car (van, pickup or panel truck) is 54 cents per mile. For 2015, the rate was 57.5 cents per mile.

The cents-per-mile rate is adjusted annually by the IRS. It is based on an annual study commissioned by the IRS about the costs of operating a vehicle.

Current gas costs

On June 15, 2016, the national average price of a gallon of regular unleaded gas was $2.36 and it fell below $2 a gallon earlier this year. This is down from the average price of $2.80 per gallon a year earlier. (There are variations in fuel prices from one state to another so the per-gallon price in your state could be higher or lower.)

Going forward

Not all taxpayers can use the cents-per-mile rate. It depends on how they’ve claimed deductions for the same vehicle in the past.

If you have questions about deducting mileage expenses in your situation, contact us.

© 2023

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