One of the deductions categories for income taxes is, according to the Internal Revenue Service, "costs of operating an automobile for business, charitable, medical or moving purposes." As with all tax issues, the rules can be a bit complicated, and accredited tax preparers and accountants can advise you on the nuances of just what is considered allowable write-offs when it comes to your vehicles.
For instance, according to a recent IRS news release, "The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs." That language can be somewhat befuddling, so it's a wise idea to seek out expert advice -- even from the IRS website -- to assess your automobile use for business trips and mileage to and from client meetings, or for transportation to and from medical treatments.
One factor that isn't confusing is that business, medical or charitable use of cars, vans, pickup trucks or panel truck has been reassessed by the IRS to allow for one half-cent less of a deduction than the amounts allowed in 2013. Here are the standard mileage rates beginning on Jan. 1, 2014, from the IRS news release:
--56 cents per mile for business miles driven.
--23.5 cents per mile driven for medical or moving purposes.
--14 cents per mile driven in service of charitable organizations.
Why so much less for use of your vehicle to participate in charitable events? The IRS says the rates for this category are based on "statute."
Can you always take these mileage deductions? Not always. The IRS says, "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 or after claiming a Section 179 deduction for that vehicle." So, if you're claiming depreciation for your vehicle or vehicles, you don't need to list your business, charitable and medical mileage, down to the tenth of a mile. Attempting to claim both depreciation and mileage is an error that can potentially raise a red flag with the IRS and perhaps lead to an audit of your tax return.
To be on the safe side, keep track of your mileage for these types of vehicle trips and submit your list to your accountant or tax preparer along with all the rest of your expense and income records. He or she will find it advantageous to have that data on-hand in case your vehicle does not qualify for depreciation. You could get a tax advantage from your meticulous notes (that many people say become second nature, via a small notepad and pencil kept in their cars) that might add a noticeable increase to your tax refund this year or decrease the amount you need to pay to the IRS.
Review the latest standard mileage allowed under the IRS's rules at IRS.gov, specifically Rev. Proc. 2010-51, Notice 2013-80 for guidance in figuring what the IRS terms "the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan."
Be aware as you review the new rules that there is a vehicle limit. The IRS says, "The business standard mileage rate cannot be used for more than four vehicles used simultaneously." So if you own a business that involves the operation of a fleet of cars, vans or trucks, you need to arrange your record-keeping strategy and tax return information to adhere to the four vehicles maximum. Again, if you were to itemize your own deductions and mistakenly attempt to claim deductions on five or more cars, that red flag will go up in the eyes of the IRS. And "I didn't know" is not likely to rescue you from penalties or a stressful audit.
It can be very rewarding to discover that you're eligible for mileage deductions that help create a more satisfying or comfortable tax return, so this is one of several categories to explore or to seek professional tax preparing assistance with. All of those car trips for work, charity or medical treatments could deliver some terrific tax breaks to you.