- IRS deduction allows employers and employees to claim a per-mile cost for business-related travel
- Alternate option of deducting “actual expenses” of operating a vehicle is also available
- Employers can assist workers in recording mileage or provide reimbursement for travel
The COVID-19 pandemic ushered in an era of remote work, video conferencing, and other trends that minimized the need for in-person interactions. Nevertheless, if you used a vehicle for business purposes in 2020 you’ll be entitled to a deduction based on how many miles you traveled.
The Internal Revenue Service maintains a standard mileage rate which changes from year to year based on fuel prices and other vehicle costs. The rate is 57.5 cents per mile for 2020 taxes, but has dropped to 56 cents per mile for 2021.
The deduction is meant to compensate workers for fuel costs as well as wear and tear when they drive a personal vehicle for business purposes. As such, people claiming the standard mileage deduction can’t claim other expenses related to using the vehicle (although there is an alternate option for deducting “actual expenses”).
Anyone claiming this deduction should have the data to back it up. Using either a standard log or a smartphone app, you should make note of your odometer reading at the beginning and end of each year, with itemized entries on the date, purpose, and miles traveled for each trip. There is also an option to deduct tolls and parking expenses associated with travel for business, although these cannot be claimed for the standard costs involved in commuting to a workplace.
Employees are typically responsible for submitting their own information and can claim the standard mileage deduction if they itemize their taxes. However, employers sometimes opt to reimburse employees for miles traveled, or track their business travel and provide them with a year-end report of these figures.
In certain circumstances, the standard mileage deduction also allows deductions at a reduced rate for travel to medical appointment or charitable work. Deductions can also be claimed for travel involved in relocating, although this only applies to members of the armed services.
In addition to the standard mileage deduction, the IRS allows a deduction of actual expenses in using a vehicle for business purposes. These include several costs, such as depreciation, fuel, maintenance, and registration fees. However, the process can also be more complex and must continue to be used for claims related to the same vehicle in future tax years. Consulting with an attorney can help you decide which option will get you the better return.
