There are two main types of IRS mileage deductions: the Standard Mileage Rate (SMR) and the actual expense rate. Provided they are not excluded from claiming either deduction, taxpayers should claim the largest deduction.
Standard Mileage Rate
The SMR is a set rate established by the IRS which specifies the per-mile amount a taxpayer can claim for each mile they drive their vehicle for business purposes. To be eligible, the taxpayer must own or lease their vehicle and the vehicle must not be part of a fleet. The SMR must be claimed in the first year the vehicle is operated, but the taxpayer can choose to claim either type of deduction in subsequent years. Lessees can only claim the SMR.
For 2013, the SMR for is 56.5 cents per mile for business travel, 24 cents for medical or moving and 14 cents for charitable service. If a taxpayer claims the SMR, they may add to it the costs of parking and any tolls they paid while driving the vehicle for business or charitable purposes. They cannot add the costs of repairs, gas, insurance or other vehicle-related expenses. The SMR cannot be used if the vehicle is provided by the taxpayer's employer.
Actual Expense Costs
This deduction consists of the total amount the taxpayer paid to operate the vehicle for business purposes. It includes the cost of gas, oil, insurance, registration fees, licenses, repairs, tires, parking and tools.
Rules Regarding Mileage Deductions
The first rule regarding claiming a mileage deduction is that the vehicle must fit the IRS definition of a car. This definition includes any vehicle weighing less than 6,000 pounds with four wheels. Therefore, "car" actually includes a pickup truck or van. Delivery vehicles containing one seat do not qualify. Additionally, taxis and other vehicles used solely for a transportation business, such as an airport shuttle van, are disqualified.
Next, the vehicle must have been driven for business purposes. This includes getting from one workplace to another, driving to business meetings, visiting clients or driving to a temporary work location. Military reservists can claim the deduction for traveling to any meeting occurring on a day when they would normally travel to work. Commuting to and from work is specifically excluded from the deduction.
The business use of the vehicle must be "common and acceptable" in the taxpayer's field of work. Overnight travel is deductible under the Business Travel Deduction, and not the general mileage deduction.
Taxpayers who operate their vehicle for charitable purposes may also be able to deduct their mileage. However, to do so they must not have engaged in any personal business on their drive. Commuting to and from the charity's place of operation is excluded from the deduction.
A taxpayer can only deduct the amount of their mileage which exceeds two percent of their adjusted gross income. A taxpayer who was partially reimbursed for their travel expenses can claim the remaining, unreimbursed amount, provided they have proper documentation.
The IRS requires all taxpayers to retain records of their travel expenses for a minimum of three years after their claim. These records must demonstrate the amount of the expense, date and place it was incurred and that the taxpayer drove for an acceptable business purpose. Records must be timely made, meaning created at or near the time of incurring the expense. Documentation of reimbursements should also be retained for a minimum of three years.
Examples of records include receipts, canceled checks and logs, and even self-made logs. Records do not need to be submitted with the tax return.
Claiming the Deduction
The type of form necessary to file for the deduction depends on the taxpayer's status.
- Employees: Employees must file Form 2106 to claim a mileage deduction. They may file Form 2106-EZ if they were not reimbursed and are claiming the SMR.
- Self-Employed Individuals or Independent Contractors: Either category of worker must include mileage expenses on Form 1040 Schedule C.
- Farmers: Farmers must file Form 1040 Schedule F to claim the deduction.
- Self-Employed and Employee Taxpayers: Individuals who are self-employed but who are also employed by an employer must file Form 1040 Schedule C for any mileage expenses incurred while working for themselves and Form 2106 for any expenses incurred while working for their employer.
Claiming Your Deduction
If you used your private vehicle partially or solely for business purposes you are entitled to a deduction for its use. If you are unsure which deduction to claim, seek professional tax advice.