Although not a significant amount, the standard business mileage rate is increasing in 2024 to 67 cents (up from 65.5 cents in 2023). Do you use the optional standard mileage rate to calculate your deductible cost of operating an automobile for business? If yes, then you can enjoy this 1.5% increase.
In part, the increased tax deduction is partially due to gasoline prices, which is about the same as it was a year ago. According to AAA Gas Prices, current price for regular gas is $3.35 compared to $3.39 in 2023.
Standard Business Mileage Rate vs. Tracking Expenses
In short, businesses can deduct the actual expenses attributable to business use of vehicles. For example, licenses and vehicle registration fees, oil, insurance, repairs, tires and gas. Plus, you can claim a depreciation allowance for the vehicle. But for vehicles that don’t apply to other types of business assets, certain limits can apply to depreciation write-offs.
If you don’t want token track of actual vehicle related expenses, the cents-per-mile rate is helpful. However, you still have to record date, destination, and mileage for each business trip.
The standard business mileage rate is also used by businesses that reimburse employees for business use of their personal vehicles. These reimbursements can help attract and retain employees who drive their personal vehicles for business purposes. This is because by law, employees cannot deduct unreimbursed employee business expenses, such as business mileage, on their own income tax returns.
But keep in mind that you must comply with various rules if you use the cents-per-mile rate. And if you don’t comply, reimbursements to employees could be considered taxable wages to them.
Rate Calculation
The business cents-per-mile rate is adjusted annually. It’s based on an annual study commissioned by the IRS about the fixed and variable costs of operating a vehicle, such as depreciation, repairs, maintenance and gas. Sometimes, if there’s a significant change in average gas prices, the IRS will change the rate midyear.
Cents-Per-Mile Rate Not Always Allowed
In some cases, you cannot use the cents-per-mile rate, as it depends on how you have claimed deductions for the same vehicle in the past. In other cases, it matters if the vehicle is new to your business this year. Or, whether you want to opt for certain first-year depreciation tax breaks on it.
In fact, there are many factors to consider when deciding whether to use the standard business mileage rate to deduct vehicle expenses. If you have questions about tracking and claiming such expenses in 2024, we can help.
You may also enjoy reading: 2024 Tax Season Questions and Answers
