The IRS has issued the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.
As always, please contact our office if you wish to discuss any of these changes and how they may directly affect your business.
Dean R. Holland, CPA, MSA
IRS Releases Standard Mileage Rates for 2020
The IRS has issued the 2020 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. The IRS has also announced: a) the 2020 depreciation component of the mileage rate; and (b) the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate (FAVR) plan.
Background on TCJA. From 2018 through 2025, the Tax Cuts and Jobs Act suspended all miscellaneous itemized deductions subject to the 2%-of-adjusted gross income (AGI) floor, including unreimbursed employee travel expenses.
Accordingly, the business standard mileage rate for 2020 cannot be used to claim an itemized deduction for unreimbursed employee travel expenses. However, deductions for expenses that are deductible in determining AGI for various calculations are not suspended.
The TCJA also generally suspended the deduction for moving expenses from 2018 through 2025, but this suspension doesn’t apply to members of the Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station.
Background on Standard Mileage, Etc. The mileage allowance deduction (subject to current limitations described above) replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving.
Employers that require employees to supply their own autos may reimburse them at a rate that doesn’t exceed the business mileage allowance for employment-connected business mileage, whether the autos are owned or leased. The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee’s personal use of lower-priced company autos may be valued at the optional mileage allowance if certain conditions are met.
The mileage rate for driving an auto for charitable use (14¢ per mile) is a statutory rate that’s not adjusted for inflation.
The IRS generally adjusts the standard mileage rate annually, based on a yearly study of the fixed and variable costs of operating an auto. However, the IRS has made mid-year adjustments in certain years when necessary to better reflect the real cost of operating an auto in light of rapidly rising gas prices.
Standard mileage rates for 2020. Notice 2020-5 provides that the 2020 standard mileage rate for transportation or travel expenses is 57.5¢ (down from 58¢ per mile in 2019) for all miles of business use (business standard mileage rate).
The 2020 standard mileage rate is 17¢ per mile (down 3¢ from 2019) for use of an auto (1) for medical care; or (2) as part of a move for which expenses are deductible (see Background-TCJA above). The standard mileage rate is 14¢ per mile for use of an auto in rendering gratuitous services to a charitable organization.