Save money on your taxes with this fuel allowance method
Every year the IRS publishes the new amount for the deductible or allowance on fuel for your vehicle if you fall under their assigned situation.
There are three main categories for the allowance.
- Business miles
- Medical Miles
- Charity Miles
These are the big three categories that are covered, each with a different amount of money per mile.
The IRS uses an independant contractor to perform an annual study of the fixed and the variable costs for operating an auto to finally determine the Standard Mileage Rates for Business, Medical and Charitable miles.
These are the highest paid miles on record for an allowance from the IRS.
The business standard mileage rate cannot be used for more than four vehicles used simultaneously.
In the year 2016 the IRS allows us to take only 54 cents per mile driven for business use (business standard mileage rate) from our tax bill. In the previous year, 2015 it was 57 1/2 cents per mile.
You have to be in the proper category to get the allowance. If you are a sole proprietor you are usually OK to get the deduction as long as you follow the rules for business miles driven etc.
You will need to use a Mileage Log of some sort to show the IRS what miles you drove and where you went etc. Download the free Mileage Log.
If your vehicle is paid for, has a low cost of operation, and gets a good MPG, then it might well be that this is the most lucrative way to deduct.
The law usually kicks in for the year on January 1 of the year and covers cars, vans, pickups and panel trucks.
In the year 2011, and a very few other years we were showed a change mid year at the June 30, July 1 point. It was an increase for the second half of the year due to the elevated cost of fuel etc.
This change and yearly changes are figured due to a study by the contractor Runzheimer International, working for the IRS.
There is also the Actual Expense method. That method is described more thoroughly in the web page linked in the previous sentence. If you are uncertain about which is the best method then do a little math and figure out the numbers for each for the year. There will be your answer as to which will pay off best.
There are rules about changing from one method to another so be aware of that.
Here is a bonus for Mileage Allowance:
You can deduct these expenses as well.
- Applicable registration fees and any taxes. (By percentage of business use)
- Parking fees and tolls. (During business use)
- Loan Interest that you might have on the car. (By percentage of business use)
You can not deduct
- Lease Payments
- Actual auto expenses
The IRS tells us that "A taxpayer can not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle."
Here is an example of some math:
Joe has an 8 year old economy car that is paid in full. the car get's 25 miles per gallon.
That person will drive two hundred miles and use 8 gallons of gas. Let's say the gas costs $4.00 per gallon (the high side for most areas). The cost of the fuel is $16.00 per hundred miles and $32.00 for two hundred.
The mileage deduction that could have been taken here in the year 2013 was $56.50 for a hundred mile trip.
Ok let's extrapolate - Every month the person drives 1000 business miles. That is roughly 250 miles a week.
The deduction is $565.00 for that month alone.
Drive the same miles every month = $6,780.00!
The cost of fuel for the year is $1,920.00.
You are now ahead by $4,860.00, there you have a nice deal!
In 5 years you are ahead of the game by $24,300.00 You have to love that!
There is the medical mileage rate which is somewhere near half of the business mileage rate.
If you have done some driving for charity you can take a mileage deduction for charity at a different but dramatically lower rate.