The IRS 2016 optional standard mileage rates are in. These rates are used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
You can generally deduct actual expenses incurred from driving your vehicle for business. The expenses may cover gas, oil, tires, insurance, repairs, licenses, and registration fees. Also, based on the percentage of business use, you may be able to claim a depreciation allowance for the vehicle. However, annual write-offs are subject to so-called “luxury car” limits, indexed annually.
Keeping track of every vehicle-related expense can be frustrating, and not all taxpayers want to bother, but there is another option. Instead of deducting your actual expenses, you may be able to use the IRS’ standard mileage rate. With this approach, you don’t have to account for all your actual expenses, although you still must record the mileage for each business trip, the date, the destinations, the names and relationships of the business parties and the business purpose of the travel. The rate is adjusted annually by the IRS.
As of January 1, 2016, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are as follows:
- 54 cents per mile for business miles driven. For 2015, the rate was 57.5 cents a mile. The lower amount for this year reflects the fact that gas prices have dropped in the past year.
- 19 cents per mile driven for medical or moving purposes, down from 23 cents for 2015.
- 14 cents per mile driven in service of charitable organizations. (This amount remains unchanged from 2015.)
An annual study of the fixed and variable costs of operating an automobile is used to determine the standard mileage rate for business, and the rate for medical and moving purposes is based on the variable costs as determined by the same study, which was conducted by Runzheimer International.
Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.
What Does Gas Cost These Days?
According to the AAA Daily Fuel Gauge Report, the national average price of a gallon of regular unleaded gas was $1.85 on January 21, 2016. This is down from the average price of $2.04 per gallon a year earlier.
There are variations in fuel prices from one state to another so the price per gallon in your state could be higher or lower than the average. For example, on January 21, the average price per gallon of regular unleaded gas was:
- $1.58 in Missouri,
- $1.73 in New Jersey,
- $2.63 in Hawaii, and
- $2.71 in California.
If you have questions about deducting mileage expenses in your situation, consult with your tax adviser.