The IRS just announced the official standard mileage rates for 2017, and there have been some minor decreases.
IRS Mileage Rates for 2017
The IRS mileage rates for 2017 for the use of a vehicle are:
- 53.5 cents per mile for business miles driven, down from 54 cents for 2016;
- 17 cents per mile driven for medical or moving purposes, down from 19 cents in 2016;
- 14 cents per mile driven in service of charitable organizations.
The IRS mileage rates for 2017 apply to miles driven starting January 1, 2017.
According to the announcement, the business mileage rate decreased half a cent per mile, and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and remains unchanged.
The IRS sets mileage rates each year for business, moving, and medical purposes after studying the fixed and variable costs of operating a vehicle. It calculates variable expenses using the average cost of driving a vehicle and factors in gas usage, maintenance, and repair. Only the variable rate applies for medical and moving purposes.
Since mileage rates are contingent upon the costs of driving a vehicle, it’s likely the current drop in oil prices factored into the IRS’s decision to decrease rates.
The 2017 mileage rates apply to miles driven in the following types of vehicles: cars, vans, panel vans and pickup trucks.
Claiming Standard Mileage Rate versus Actual Expenses
Business owners or employees who use their personal vehicle for work have two options for keeping up with mileage: utilize the standard mileage rate (SMR) or track actual expenses.
Which is better? “It depends,” says a blog post on the MileIQ website. (MileIQ is an app for tracking mileage.)
Using the SMR may be the easiest of the two, MileIQ says, but it’s not as simple as it sounds. Not only do you need to keep track of the number of miles driven along with the total miles but also the dates of trips, business destinations, and business purposes.
The second option, tracking actual expenses, can result in a larger deduction but demands meticulous record keeping that includes gas and oil, repairs and maintenance, depreciation, fees, insurance, and more.
The choice of which to use may come down to the vehicle in question. For example, you may benefit from the standard rate if you drive a smaller car that uses less gas. A larger vehicle, such as a panel van, costs more to operate, and as a result, the actual expense method may serve you best.
MileIQ recommends keeping track of costs the first year you use the vehicle for business. Then, at tax time, run the numbers to determine if the deduction will be larger using the standard mileage rate or actual expense method.
Reimbursing Employees for Mileage
Should businesses reimburse employees for mileage associated with the use of their personal vehicle in a work-related context?
According to Pam Steverson, CPA, with the accounting firm Kemp, Williams, Steverson & Bernard, who spoke with Small Business Trends by phone, an employer does not have to reimburse an employee for business miles, although most do.
“The employer does not have to use the standard mileage rate for reimbursement,” she said. “Whatever the reimbursement, the employer gets a business deduction. As long as the reimbursement is done via an accountable plan (i.e., expense report detailing the business purpose, miles, client, date), the employee does not have to pick this up as income.”
If the reimbursement is not via an accountable plan — the employer just gives the employee $500 a month for the use of his vehicle, for example — the employer can still get a business deduction, Steverson said. However, the reimbursement should be reported as wages and not travel reimbursement, with all of the applicable payroll taxes being paid.
Employees should reference their employee handbook to determine the employer’s reimbursement policy. If no official policy exists, they should ask their supervisor or contact the human resource department for information.
Employers, be sure to update any written policies to reflect changes in the SMR for 2017 and notify employees of those.
Other Mileage Rate Tips and Info
If you are working on the prior year’s tax returns, remember to revert to the mileage rates for that year. Your tax professional can assist you regarding the implementation of mileage rules for a given situation.
Also, once announced, the SMR applies for the entire year. At times, however, the IRS has made mid-year adjustments based on fluctuations in gas prices.
Related resources:
- Official IRS notice for 2017 mileage rates
- 2016 mileage rate for miles driven in 2016
- 2015 mileage rate for miles driven in 2015
Image: Small Business Trends
