Standard Business 2018 Mileage Rates
The 2018 mileage rates are going up. As it does every year, the Internal Revenue Service recently announced the optional standard 2018 mileage rates. These rates calculate the deductible costs of operating an automobile for business, charitable or medical purposes. The change is due to the adjustment of inflation for 2018.
Business, Charitable and Medical Rates
- 54.5 cents per mile for business miles driven (including a 25-cent-per-mile allocation for depreciation). This is up from 53.5 cents in 2017;
- 18 cents per mile driven for medical purposes. This is up from 17 cents in 2017; and
- 14 cents per mile driven in service of charitable organizations.
The business standard mileage rate is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical purposes is based on the variable costs as determined by the same study. The rate for using an automobile while performing services for a charitable organization is statutorily set (it can only be changed by Congressional action) and has been 14 cents per mile for over 15 years.
The basis for the 2018 business mileage rates is from the 2017 fuel costs. The thought is that gas prices will be higher in 2018. It may be appropriate to consider switching to the actual expense method for 2018. Or, at least keeping track of the actual expenses, including fuel costs, repairs, maintenance, etc., so that the option is available for 2018.
What Option Should I Chose to Calculate My Business Vehicle Expense?
Taxpayers always have the option of calculating the actual costs of using their vehicle for business rather than using the standard mileage rates. In addition to the potential for higher fuel prices, the extension and expansion of the bonus depreciation, may make using the actual expense method worthwhile during the first year a vehicle is placed in business service. Keep in mind, this is as well as depreciation limitations going up for passenger autos in the Tax Cuts and Jobs Act. If you were using the actual method known as Bonus Depreciation and/or MACRS depreciation (using Sec. 179), in previous years, this rule is applied on a vehicle-by-vehicle basis. In addition, the business standard mileage rate cannot be used for any vehicle used for hire or for more than four vehicles simultaneously.
When employers reimburse employees for car expenses that relate to business use, using the standard mileage allowance method for each substantiated employment-connected business mile, the reimbursement is tax-free if the employee substantiates to the employer the time, place, mileage and purpose of employment-connected business travel.
The Tax Cuts and Jobs Act took out employee business expenses as an itemized deduction. This is effective for 2018 through 2025. Therefore, employees may no longer take a deduction on their federal returns for unreimbursed use of their vehicles. This includes autos, light trucks and vans.
Faster Write-Offs for SUVs
Mileage expense for Heavy Sport Utility Vehicles or more commonly known as SUVs, have some changes in 2018. Many of today’s SUVs weigh more than 6,000 pounds. They are not subject to the limit rules on luxury auto depreciation. Taxpayers with these vehicles can utilize both the Section 179 expense deduction (up to a maximum of $25,000) and the bonus depreciation (the Section 179 deduction must be applied before the bonus depreciation) to produce a sizable first-year tax deduction. However, the vehicle cannot exceed a gross unloaded vehicle weight of 14,000 pounds.
Caution: Business autos are 5-year class life property. This means that if the taxpayer disposes of the vehicle before the end of the 5-year period, a portion of the Section 179 expense deduction will be recaptured and must be added back to your income (SE income for self-employed individuals). So keep in mind, most taxpayers sell or trade in the vehicle before the 5 years is up. So, remember that there are future consequences of deducting all or a significant portion of the vehicle’s cost using Section 179.
Do you need advice regarding 2018 business tax strategies?
The 2018 mileage rates are not the only changes that took place with Tax Reform, there is more. Taking advantage of tax reform can save you a lot of money if you have the right strategy in place. If you would like to make an appointment to develop a year-end tax strategy, give Alex Franch, BS EA a call at 781.849.7200 or email us at email@example.com.
Alex Franch, BS EA
Alex is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Alex is an Enrolled Agent and has a decade of tax preparation experience. He is passionate about serving businesses with tax and financial planning strategies.
Do you have questions about the best methods of deducting the business use of your vehicle? Perhaps you would like to know what the necessary documentation is. Give this office a call.