The IRS has announced a business standard mileage rate increase for transportation expenses paid or incurred beginning January 1, 2018. The business rate will be 54.5 cents per mile, up 1 cent from the 53.5 cents-per-mile rate in effect during 2017 [Notice 2018-03]. In addition, the 2018 standard rate for miles driven for medical or moving purposes will increase to 18 cents per mile, up from the 17 cents-per-mile rate in effect during 2017. The standard mileage rate for operating a passenger car for charitable purposes, which is set by law, will stay at 14 cents per mile in 2018.
The standard mileage rates for the use of a car, van, pickup or panel truck will be:
- 54.5 cents per mile for business miles driven (up from 53.5 cents in 2017)
- 18 cents per mile driven for medical or moving purposes (up from 17 cents in 2017)
- 14 cents per mile driven in service of charitable organizations (currently fixed by Congress)
The mileage rate may be used to compute the amount to reimburse employees who are using their own cars for business purposes. It may also be used by employers that elect to use the “cents-per-mile” valuation method for purposes of determining the amount that needs to be imputed to an employee’s income for personal use of certain company-owned or leased non-luxury vehicles.
EMPLOYERS> PLEASE NOTE: Because of this 1 cent increase in standard mileage rates, employers should make sure they change to the 2018 rate for all affected travel on or after January 1, 2018. Remember that business miles driven in December 2017 that show up on an employee’s expense report in 2018 are governed by the rules applicable to the corresponding 2017 mileage rate.
Why the difference in the rates for business and medical or moving purposes?
The reason is that 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.
Finally, for purposes of computing the allowance under a fixed and variable rate (FAVR) plan, the standard automobile cost may not exceed $27,300 in 2018, down $600 from 2017. A FAVR allowance uses a flat rate or stated schedule that combines periodic fixed and variable rate payments, and it relieves employees of the need to keep a record of their actual expenses.
Calculating mileage rate deductible expenses:
The optional standard mileage rates are used to calculate the amount of a deductible business, moving, medical or charitable expense. 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 .54 = $4,320
Your total deductible mileage related expenses would be $4,600 plus additional related charges such as parking fees and tolls.
Whether these 2018 rates will impact most taxpayers in 2018 isn’t yet clear.
The current tax reform proposals would eliminate the mileage deduction for moving expenses and job-related business mileage deductions for employees filing a Schedule A. In addition, both proposals would disallow – on the employer’s side – favorable tax treatment for employer reimbursement of employee moving expenses. However, under Senate version of the bill, the tax treatment of these deductions would sunset, which means that the treatment of expenses would go back to the way the law is now (in 2017) beginning in 2026. Both proposals would retain the charitable donation deduction, including for charitable miles. And in good news, under the House proposal, the mileage rate for charity would finally be indexed for inflation (it’s been 14 cents per mile since the Clinton era).