The Internal Revenue Service (IRS) has issued the 2017 optional standard mileage rates and beginning on January 1, 2017, the standard mileage rates for the use of a car, van, pickup or panel truck will be:
- 53.5 cents per mile for business miles driven (down from 54 cents in 2016)
- 17 cents per mile driven for medical or moving purposes (down from 19 cents in 2016)
- 14 cents per mile driven in service of charitable organizations (fixed by Congress, never adjusted for inflation)
If you’re wondering about the difference in the rates for business and medical or moving purposes, there’s a reason: the standard mileage rate for business is calculated using an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil while the rate for medical and moving purposes is based on the variable costs, such as gas and oil.
The optional standard mileage rates are used to easily calculate the amount of a deductible business, moving, medical or charitable expense (miles driven times the applicable rate). To use the rates, simply multiply the standard mileage rates by the number of miles traveled. If you use your car for business and personal use, you’ll want to keep appropriate records and back out the cost of personal travel.
It’s possible to use more than one rate on your tax return. Let’s say, for example, that you drive 20,000 miles in 2017. Of those miles, 10,000 are for personal use, 2,000 are for charity and 8,000 are for business use. You would calculate your deduction as follows:
10,000 personal miles x 0 = 0
2,000 charitable miles x .14 = $280
8,000 business miles x .535 = $4,280
Your total deductible mileage related expenses would be $4,560 plus additional related charges such as parking fees and tolls.
Taxpayers have the option of deducting their actual costs rather than using the standard mileage rates – though admittedly, that’s a lot more work. No matter which option you choose, be sure to keep good records to support your claims. The best option is to keep a mileage log. Some folks keep a small notepad in the car for just this purpose. Another option is to find an app on your smartphone like MileIQ.
Of course, it’s not just taxpayers waiting for IRS to release the updated mileage rate each year. Many employers rely on the IRS mileage rate, or “Safe Harbor Rate,” to determine amounts for reimbursement plans for employees. Craig Powell, CEO of Motus, says that isn’t recommended. The mileage rate, he says “is a fixed, nationally-averaged rate that is calculated based on the average cost of operating a vehicle during the previous year, across all 50 states.” However, he notes that “[i]t does not account for variable driving costs that change month to month (such as gas prices), nor does it consider the variations in costs from state to state for things like automobile insurance and fuel.”
What does that mean for drivers? Powell explains that national averaging means that operating costs are above the average in some states and below the average in others. Since most drivers don’t drive an equal number of miles in all 50 states each year, he says, “using the IRS Safe Harbor Rate for reimbursement creates winners (those drivers in states where operating costs fall below the national average) and losers (those drivers in states where operating costs are above the national average).”
There’s a better way, according to Powell. He notes that the “IRS’s only recommended reimbursement approach is the fixed and variable rate (FAVR) methodology” outlined in (Rev. Proc. 2010-51 (downloads as a pdf). That method, he explains, calculates reimbursement rates based on an individual driver’s location and mileage-specific costs. That should produce a more fair result for employees when it comes to reimbursements.
Taxpayers, however, don’t have that option when it comes to claiming expenses. The only choices are the actual cost method or the use of the optional standard mileage rates, detailed above.
A quick word of caution: these rates go into effect at the beginning of 2017 for the 2017 calendar year. That means they’ll show up on your 2017 returns (the ones you’ll file in 2018). You’ll use the 2016 standard mileage rates for the tax return that you’ll submit in 2017.
