The Internal Revenue Service (IRS) releases adjustments on its tax rates and reimbursement rates each year. The IRS mileage and reimbursement rates for 2016 have recently been released. These are optional standard rates and people can use them in order to work out how much money they can deduct for the operation of a vehicle that is used for moving, medical, charitable, or business purposes. The new rates have come into effect and cover the period from January 1, 2016 onward.
Understanding the IRS Mileage and Reimbursement Rates:
The rates set as per January 1, 2016 are as follows and cover all types of vehicles (cars, panel trucks, pickups, and vans):
– For business miles driven, the rate is now 54 cents per mile, which is down from 57.5 cents per mile in 2015.
– For moving or medical purposes, the rate per mile driven is now 19 cents, down from 23 cents per mile driven in 2015.
– For driving in the service of charitable organizations, the rate has stayed at 14 cents per mile.
As you can see, there have been some reductions in the rates: 3.5 cents for business mileage rates, and 4 cents for moving and medical expenses. The reason why there has not been a reduction in the charitable rate is because it is based on statute. For business rates, in contrast, the rate is based on the study conducted each year to look at what the variable and fixed costs are of operating a vehicle. Moving and medical purposes rates, on the other hand, are based solely on the variable costs.
You do have the option of calculating what the actual cost was of using your vehicle. In that case, the standard mileage rates are applicable to you. However, if you used a depreciation method as listed under the MACRS (Modified Accelerated Cost Recovery System), you cannot use the standard business mileage rate for an automobile. Similarly, if you have claimed a deduction under Section 179 for your automobile, you also cannot use the business standard mileage. Lastly, you cannot use it if you operate more than four vehicles at the same time.
The exact IRS mileage and reimbursement rates are listed under Rev. Proc. 2010-51, which highlights not just the above requirements, but also any other that a taxpayer must employ if they want to calculate what their standard mileage rate is for medical, charitable, moving, or business expenses. Specifically, the IRS Notice 2016-01 clearly lists what the standard mileage rates are, and what the amount is that has to be used by taxpayers if they want to work out what their reductions are to be based on if they use the business standard mileage rate for depreciation taken. It also lists what the maximum standard cost for a vehicle is that a taxpayer is allowed to use in order to work out and calculate what the allowance is based on fixed and/or variable plans. As always, consult a financial advisor if you are unsure.