Here’s a good piece of news for business owners: The IRS has increased the 2019 mileage rate. Realtors, property managers, and real estate investors can now deduct 58 cents per mile for business use. Don’t speak tax code? That’s okay, we’ve broken down what this increase means and who can take advantage of it.
2019 Standard Mileage Rates
The 2019 standard mileage rates cover any vehicle use after January 1, 2019. These are the rates you will be able to apply when you file your taxes in 2020, according to the Internal Revenue Service:
- 58 cents per mile for business use, a 3.5-cent increase from 2018
- 20 cents per mile driven for moving or medical purposes, up 2 cents from 2018
- 14 cents per mile for service of charitable organizations
Can I Deduct My Mileage?
If you are a self-employed worker, yes you can. That means, if you own your own business or work as an independent contractor, you can deduct the business mileage rate of 58 cents per mile for any vehicles you drive for business purposes.
This includes your personal vehicle or any cars, panel trucks or vans used for your company. Just remember, the IRS requires that self-employed workers keep a mileage log. Also, you can use a mileage-tracking app in order to deduct miles as business expenses.
If you are a full-time employee (which means you receive a W-2), you cannot deduct your mileage. The Tax Cuts and Jobs Act (TCJA) of 2018, states that you can no longer claim un-reimbursed business travel expenses, including mileage.
Prior to the TCJA, if your company did not reimburse employee travel expenses, you could claim them as a miscellaneous itemized deduction. The act also bars claims on moving expenses, with the exception of active duty armed force members relocating to a permanent change of station.
You should be aware of a few other restrictions in the new act. You may not claim the standard mileage rate:
- After taking any depreciation with the Modified Accelerated Cost Recovery System.
- If you’ve already claiming a Section 179 deduction.
- On more than four vehicles simultaneously.
Tip: If you are heavily affected by this tax change, experts suggest approaching your employer. Tell them about the impact on your bottom line and urge them to revise their reimbursement policy.
FAVR Plans Vs. Standard Mileage Rate
If you are self employed, you can deduct the actual expenses for use of a car relating to your business. This means, you can track costs of gas, oil, insurance, tires, repairs, and registration fees.
Since that can be complicated and tiresome, most business owners prefer to take the Standard Mileage Rate. The IRS adjusts the rate each year to account for the price of gas and general wear and tear on your vehicle.
If you live in an area with particularly high automobile operating costs, you might save more with the Fixed and Variable Rate (FAVR) allowance plan.
In this case, you would keep track of variable costs like maintenance and fuel. Additionally, employees who drive their personal vehicles for work can get tax-free reimbursements from their employer on a quarterly basis.
That said, there is a limit. The cost of a vehicle cannot exceed the maximum set by the IRS. In 2019, the maximum is $50,400 for cars, trucks, and vans. This is a large increase from 2018, when the cap was $27,300 for cars and $31,000 for trucks and vans.
The advantage of FAVR is that in locations with high maintenance and fuel costs (like California or Hawaii), the actual costs may be more than the standard reimbursement rate. FAVR plans are typically chosen by companies with high-mileage workers like truck and taxi drivers.
Should You Use The Standard Mileage Rate?
If you are a small business owner, chances are you are your own accounting department. Filing your taxes can be complicated, but the good thing is you can deduct expenses relating to your business. One such expense is use of your vehicle for business purposes. The easiest way to do this is to log your business-related miles and file for a deduction with the current IRS Business Mileage Rate.