The IRS has just released the standard mileage rates for 2020. The big change is the business mileage rate and some moving and medical expenses dropped.
IRS Mileage Rate For 2020
The IRS mileage rates for 2020 for business vehicle use are:
- 57.5 cents per mile of business use. That’s a drop of 0.5 cents from 2019.
- 17 cents per mile to cover moving or medical purposes. That’s a drop of 3 cents from 2019.
- 14 cents per mile driven for charitable organizations. There is no change here.
The IRS mileage rates for 2020 applies to miles driven starting January 1, 2020. The standard mileage rates are critical in providing SMBs a method to calculate deductible costs for operating a vehicle for their businesses. It’s the benchmark many small businesses use.
Tax Cuts and Jobs Act
Business owners also need to know about how current law factors in. For example:
- Taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses under this legislation.
- The same applies for a deduction for moving expenses, except for active duty Armed Forces members moving under orders to a permanent change of station.
The IRS sets these rates yearly for small businesses. The medical and moving expenses are derived after looking at the fixed and variable costs for business vehicles. The numbers are based on averages of these costs. Different factors are involved including repairs, maintenance and gas used. The variable rate is applicable to medical and moving expenses.
How The Standard Mileage Rate Stacks Up Against Actual Costs
The IRS standard mileage rate isn’t the only method for calculating these deductions. The actual costs are another route. Using this method means clear records must be kept. Most times, actual expenses involves a larger volume of paperwork.
Even so, the option for taxpayers of using the standard mileage rate has some restrictions. A taxpayer can’t use this standard mileage rate without consulting the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.
IRS Mileage Rate for 2020 and Personal Vehicles
The standard mileage rate is a common benchmark for reimbursing employees for miles where they use personal vehicles for business purposes. Employee handbooks are often good reference points as they outline rates and methods of reimbursement. The miles driven for business are documented by employees. That number is multiplied by the reimbursement rate.
It’s important to remember that the standard mileage rate is based on yearly data compiled for the variable and fixed costs. The same rate for moving and medical purpose is based on these variable costs.
As well, the business standard mileage rate doesn’t apply to over five vehicles that are being used at the same time. Small Business can find other limitations in section 4.05 of Rev. Proc. 2019-46.
Finally here’s a good way to start keeping these records and establish a baseline. The first year you use any vehicle for business purposes is important. Keeping track of your costs can help you determine if an actual cost deduction might be bigger than the standard mileage rate.
Related Resources
- Standard mileage rates for 2019
- IRS mileage rate for 2018
- Official IRS notice for 2017 mileage rates
- 2016 mileage rate for miles driven in 2016
- 2015 mileage rate for miles driven in 2015
Image: IRS
I’d love to know the process for determining that the mileage rate needs to be reduced by half a cent. How do they even come up with that?
Hey Rob Starr. Great Article. May I know is there any changes in mileage limit exceeds to File Form 2290 Online?
Good writing