Individuals can deduct some vehicle-related expenses in certain circumstances. Rather than keeping track of the actual costs, you can use a standard mileage rate to compute your mileage deduction. For 2017, you might be able to deduct miles driven for business, medical, moving and charitable purposes. For 2018, there are significant changes to some of these deductions under the Tax Cuts and Jobs Act (TCJA) which may require some tax planning or discussions with your employer.
Mileage rates vary
The rates vary depending on the purpose and the year:
Business: 53.5 cents (2017), 54.5 cents (2018)
Medical: 17 cents (2017), 18 cents (2018)
Moving: 17 cents (2017), 18 cents (2018)
Charitable: 14 cents (2017 and 2018)
The business standard mileage rate is considerably higher than the medical, moving and charitable rates because the business rate contains a depreciation component. Depreciation is not allowed for the medical, moving or charitable use of a vehicle. The charitable rate is lower than the medical and moving rate because it isn’t adjusted for inflation.
In addition to deductions based on the standard mileage rate, you may deduct related parking fees and tolls.
2017 and 2018 limits that could impact your personal tax return
The rules surrounding the various mileage deductions are complex. Some are subject to floors and some require you to meet specific tests in order to qualify.
For example, if you’re an employee, only business mileage not reimbursed by your employer is deductible. Otherwise, the mileage is a miscellaneous itemized deduction subject to a 2% of adjusted gross income (AGI) floor. For 2017, this means mileage is deductible only to the extent that your total miscellaneous itemized deductions for the year exceed 2% of your AGI. For 2018, with the passage of the Tax Cuts and Jobs Act (TCJA), it means that you can’t deduct the mileage, because the TCJA suspends miscellaneous itemized deductions subject to the 2% floor for 2018 through 2025. As a side note, this will also affect your ability to write-off a portion of your home-office as an employee as well.
Business mileage is a deduction against self-employment income. Therefore, for self-employed taxpayer’s the mileage deduction is not subject to the 2% floor and is still deductible for 2018 through 2025, as long as it otherwise qualifies.
Miles driven for health-care-related purposes are deductible as part of the medical expense deduction. And an AGI floor applies. Under the TCJA, for 2017 and 2018, medical expenses are deductible to the extent they exceed 7.5% of your adjusted gross income. For 2019, the floor will return to 10%, unless Congress extends the 7.5% floor.
And while miles driven related to moving can be deductible on your 2017 return, the move must be work-related and meet other tests. For 2018 through 2025, under the TCJA, moving expenses are deductible only for certain military families.
Tax Planning Things to Consider for 2018 as an Employee
For 2018 through 2025, can you be reclassed from an employee to an independent subcontractor? Can you get at least partially reimbursed for your business mileage related to your job? Can you take a lower W-2 amount in exchange for having your expenses reimbursed?
Substantiation and more
There are also substantiation requirements, which include tracking miles driven. And, in some cases, you might be better off deducting actual expenses rather than using the mileage rates.
We can help ensure you deduct all the mileage you’re entitled to on your 2017 tax return but don’t risk back taxes and penalties later for deducting more than allowed. Contact us for assistance and to learn how your mileage deduction for 2018 might be affected by the TCJA.