Deducting Driving Expenses: Standard Mileage Rates

Each year, the Internal Revenue Service (IRS) issues the optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, medical or moving, or charitable purposes. For 2014, the standard mileage rates for the use of a car (also vans, pickups, or panel trucks) are as follows:

56 cents per mile driven for business purposes

23.5 cents per mile driven for medical or moving purposes

14 cents per mile driven in service of charitable organizations

Mileage rates are determined by transportation costs, fuel costs, insurance costs, as well as other fixed and variable costs, such as depreciation. For business, the standard mileage rate is based on an annual study of the fixed and variable costs of operating an automobile. For medical and moving purposes, the rate is based on the variable costs as determined by the same study. The rate for charitable purposes, however, is set by law.

There may be some restriction on the use of standard mileage rates. The standard mileage deduction may only be claimed by businesses using four or fewer vehicles. Companies with five or more vehicles (as in fleet operations) that do not qualify for the deduction generally use the IRS standard mileage as a benchmark when setting reimbursement rates for employee driving expenses. If a taxpayer has used any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or claimed a Section 179 deduction for the vehicle, he or she may not use the business standard mileage rate for that vehicle. In addition, the business standard mileage rate cannot be used for any vehicle used for hire.

It’s important to note that taxpayers always have the option of calculating the actual costs of using their vehicle, rather than using the standard mileage rates. To use the actual expense method, drivers must estimate the actual costs of operating the car for business, medical or moving, or charitable purposes, including the amounts attributable to gas, oil, repairs and maintenance, tolls and parking fees, tires and other supplies, insurance, registration fees, and licenses. Depreciation may also be included in actual costs if the car has been purchased, or lease payments may be included if the car is leased.

If extenuating circumstances arise, the IRS may make special adjustments to standard mileage rates during the calendar year. In the final four months of 2005, for example, the IRS increased standard mileage rates in response to the sudden price jump at the pump in the wake of Hurricane Katrina. The IRS also increased standard mileage rates in the final six months of 2008 and 2011, in response to rising gas prices.

For more information on deducting driving expenses, consult your tax professional.