The major tax reform approved by Congress and signed by the President on December 22, 2017, commonly referred to as the Tax Cuts and Jobs Act, or TCJA, or simply tax reform, brought many changes both to individuals and businesses. This is old news!

The more recent news is that, almost three years and two tax returns later, there’s plenty of guidance, regulations, and rules still to be issued, updated, and clarified, in order to reflect the changes resulting from TCJA.

Before the end of 2019, the IRS posted Revenue Procedure 2019-46, which updates the rules for using the optional standard mileage rates in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes.

The standard mileage rate, also known as the mileage per diem or deductible mileage, is a rate set by the IRS per mile driven by a taxpayer for business or any other deductible reason such as charitable or medical purposes.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

The taxpayer can deduct the standard mileage rate instead of deducting actual expenses, as the cost of gas and wear and tear on the vehicle are built into the rate. The standard mileage rate changes regularly to keep up with inflation.

For tax year 2019, the following rates apply to personal cars, minivans, trucks, SUVs, and panel trucks:

For tax year 2020, the standard mileage rates are:

• 14.0 cents per mile driven in service of charitable organizations;
  
  
• 17.0 cents per mile driven for medical or moving purposes;
  
  
• 57.5 cents per mile for business miles driven.

If you have a vehicle, or more, that you use for your business, you may be able to use the business standard mileage rate to deduct your vehicle business expenses.

Of course, you always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

The business standard mileage rate does not apply if a depreciation method under the Modified Accelerated Cost Recovery System (MACRS) was applied to the vehicle. MACRS depreciation allows the capitalized cost of an asset to be recovered over a specified period via annual deductions. The MACRS system puts fixed assets into classes that have set depreciation periods.

This includes vehicles that are claimed as a Section 179 deduction, for any vehicle used for hire such as a taxicab, or if more than four vehicles are owned or leased and used simultaneously; as is the case with many fleet operations.

Specifically, you must reduce the basis of a vehicle used in business by the greater of either the amount of depreciation claimed for the vehicle or the amount of depreciation allowable.

If you use the standard mileage rates to calculate the deductible costs of operating a vehicle, a per-mile amount is treated as the depreciation claimed.

The cost of using your car as an employee, whether measured using actual expenses or the standard mileage rate, is no longer allowed to be claimed as an unreimbursed employee travel expense as a miscellaneous itemized deduction due to the suspension of miscellaneous itemized deductions. The suspension applies to tax years beginning after December 2017, and before January 2026.

Deductions for expenses that are deductible in determining adjusted gross income are not suspended. For example, Armed Forces reservists, qualified performing artists, and fee-basis state or local government officials are allowed to deduct unreimbursed employee travel expenses as an adjustment to total income.

The guidance mentioned earlier also provides rules to substantiate the amount of an employee's ordinary and necessary travel expenses reimbursed by an employer using the optional standard mileage rates. Taxpayers are not required to use a method described in this revenue procedure and may instead substantiate actual allowable expenses provided they maintain adequate records.

You can find out more about reimbursed travel expenses and per diem rates in a previous newsletter entitled Business Travel Expenses & Per Diem Rates.

The TCJA also suspended the deduction for moving expenses. However, this suspension does not apply to a member of the Armed Forces on active duty who moves pursuant to a military order and to a permanent change of station. If members of the U.S. Armed Forces use their car to take themselves, members of their household, or their personal effects to their new station, they can figure their expenses by deducting either the actual expenses, or the standard mileage rate for moving expenses.

The medical standard mileage rate may be used to compute the deduction for use of an automobile as medical care.

If you have to drive to regular medical appointments, the costs of transportation can add up quickly. The tax code allows you to include the costs you incur going to and from treatment with your medical expenses deduction. You can keep track of all your specific expenses, like gas and oil, but you can also just track your mileage and use the standard mileage rate. You calculate the amount you can add to your medical expenses deduction for your medical mileage by multiplying your qualifying miles by the medical mileage rate.

If you deduct your charitable donations, you may use the charitable standard mileage rate to compute the charitable contribution deduction for use of an automobile in rendering gratuitous services to a charitable organization.

Of course, the deduction for medical expenses and the deduction for charitable donations are only available if you itemize your deduction on your tax return.

If you are entitled to any of the deductions above, remember that it is important to keep complete records so you can calculate your deduction using both methods, and then choose the one that saves the most money for you.

If you want to make sure you comply with the current tax law and the latest IRS rules and regulations, help from a tax professional is both invaluable and necessary. And, of course, don’t miss out on our weekly newsletters.