As a business owner, tax deductions are your best friend. By leveraging your qualified expenses against your income, you can effectively lower your tax obligation. When it comes to qualified expenses, the IRS allows a lot of regular business expenses to be written off. One of the best deductions for business owners and independent contractors that participate in the Sharing Economy is the IRS mileage reimbursement. If you use your vehicle for business, traveling two and from meetings or even while operating a car-sharing service, you can qualify for the IRS mileage reimbursement.
What Is Mileage Reimbursement?
Business use of a vehicle allows you to deduct the associated expenses of operating your vehicle. This includes maintenance, repairs, fuel, and other expense. When it comes to claiming your vehicle expenses, you have several options: account for each expense or take the standard mileage deduction. Which method you choose will depend on your situation. It is best to talk to your tax advisor about which method is best for you.
What Are The IRS Mileage Reimbursement Rules?
If you elect to use the IRS mileage reimbursement you cannot then itemize the individual costs of operating your vehicle. This is because all of the costs associated with operating your vehicle are factored into the mileage reimbursement. This includes the cost of registration, insurance, depreciation, taxes, maintenance, repairs, and fuel. The amount is based on the average costs of expenses and takes inflation into consideration. Of course, if you want to itemize those expenses you are welcome to do so.
IRS Mileage Reimbursement 2019
As we mentioned above the amount of the mileage reimbursement adjusts to account for inflation. For the 2019 tax year, the amount increased from 54.5 cents in 2018 to 58 cents. In addition for mileage driven for business expenses, the IRS also allows you to claim mileage for medical purposes and charitable causes. The amount of the deduction for medical mileage, driving to and from appointments, is 20 cents per mile in 2019. The amount of the deduction for mileage you accumulate while doing charitable work is 14 cents per mile.
Standard Mileage Deduction Guidelines
The guidelines for the IRS mileage reimbursement are pretty straightforward. In order to claim the deduction, you must keep track of your mileage. A mileage tracking app is very effective at keeping track of your mileage. Most mileage tracking apps integrate with accounting software like Quickbooks, which can help streamline your expense tracking.
In order to be eligible for the IRS mileage reimbursement you must own or lease the vehicle, and you can’t combine it with a Section 179 or depreciation deduction. Also, you can’t claim individual expenses. You can claim one or the other; not both.
When it comes to employee mileage reimbursement, it is not required by law. However, many employers do offer mileage reimbursement. If the IRS standard rate is reimbursed to the employee, it is not considered taxable income.
How to Claim the Federal Mileage Reimbursement
To claim the mileage reimbursement, you must keep track of your mileage. You can use an app, spreadsheet, trip log, or whatever method works for you. Once you have your total business mileage, multiply that by 58 cents. This is the amount of your deduction. For example: if you drove 1,000 miles for business, you would multiply 1,000 x .58 which gives you a deduction of $580.
Mileage Depreciation for Sharing Economy
When choosing the best way to go about accounting for your business vehicle expenses you have several options; IRS mileage reimbursement or calculate the actual car expenses. The IRS mileage reimbursement is the most simple and easiest way to deduct your car expenses. However, tracking your actual expenses might save you more.
Depreciation allows you to span your deduction over the course of the useful life of your asset. As far as cars are concerned, the useful life is usually about 5 years or so. The basic formula to calculate depreciation is,
“(Cost – Salvage Value) ͏÷ Useful Life”
For example, if you purchased a new car for $20,000 and you estimated the salvage value at $10,000, and you plan to use the vehicle for 5 years, you would have a depreciation amount of $2,000 per year.
Turo and Getaround Owners
For Turo and Getaround owners, the best choice depends on the total amount of your vehicle’s direct expenses. One thing to consider is your vehicle insurance expense. When it comes to Turo, many insurance companies don’t issue individual auto policies to Turo hosts. If you are unable to procure an individual policy, you may have to acquire a commercial insurance policy, which can be a lot more expensive. Likewise, if you rent out a Tesla as opposed to a Kia, the cost of your Tesla is more substantial than the Kia, in which case, depreciating your vehicle would make more sense than taking the IRS mileage reimbursement. Accounting for actual expenses does require substantial bookkeeping and expense tracking. Make sure you have a good system in place.
Uber and Lyft Drivers
The IRS mileage reimbursement offers different benefits for Uber and Lyft drivers than Turo hosts. The IRS mileage reimbursement is the simplest way to calculate your costs, but it doesn’t always give you the biggest deduction. Take into consideration the cost of your insurance and your repairs and maintenance. If you put a lot of miles on your vehicle, your vehicle is likely to require more frequent maintenance and repairs, which may be greater than the IRS mileage reimbursement amount. Again make sure you are accurately tracking your expenses, so you can make an educated decision.
Is IRS Mileage Reimbursement Right for Me?
When it comes to your business deductions you want to get the biggest bang for your buck. That’s why it’s important to weigh your options when it comes to deducting your vehicle expenses. If you aren’t one for number crunching, taking the IRS mileage deduction may be the best route to go. However, if you have a lot of vehicle expenses it may make more sense financially to account for each expense. Having a good accounting system in place can be really helpful when determining the right method to use. We like to recommend Quickbooks pro, as it is capable, reliable, and compatible with many mileage tracking apps.
In addition to weighing your options, it is always a good idea to seek the counsel of a tax advisor. A tax advisor may be able to give you more insight about your tax situation and educate you about the best way to file your taxes. Wondering if the IRS mileage deduction is right for you? Schedule a strategy session with one of the tax experts at Shared Economy today. To learn more subscribe to our newsletter.
