What the New IRS Mileage Rate Means for Car Owners
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Filing taxes for 2017 may have already come to a close, but that doesn’t mean you can’t start planning ahead for 2018’s filing. As it pertains to driving for special uses cases (i.e. business, medical, or charitable reasons), the IRS allows specific mileage rate deductions, which vary year to year.
In this post we’ll detail the new mileage rates for 2018 and what your time on the open road will mean for next year’s tax return.
Standard IRS mileage rates for 2018
Essentially, if you’re using your vehicle for business purposes, medical reasons, or charitable services, you can deduct up to the allowable rate set forth by the IRS against your income for the 2018 tax year.
The IRS announced that, beginning on January 1, 2018, the standard mileage rates for vehicle use would be as follows:
- For business purposes: 54.5 cents per mile driven (up from 53.5 cents in 2017)
- For medical purposes: 18 cents per mile driven (up from 17 cents in 2017)
- For charitable purposes: 14 cents per mile driven
Business mileage rate
It should be noted right off the bat that business mileage does not apply to employees commuting to their regular place of business or work. Business mileage applies only to self-employed people doing any driving directly related to their business (e.g. meeting with a client, picking up business cards, or going to a networking event).
Example: Ken is a freelance web designer. A client needs to meet with him to talk about their new website. They ask Ken to drive out to their office. The office is 20 miles out from where Ken lives. That means Ken can deduct 40 miles’ worth of the standard business mileage rate, since he isn’t just driving to the client’s office, but back home as well. The math, then, looks like this:
54.5 cents (2018 standard IRS business mileage rate)
40 miles (20 miles to the client’s office and 20 miles back to Ken’s home)
54.5 x 40 = $21.80
Ken can deduct $21.80 from this specific drive to and from the client’s office.
Medical mileage rate
Medical mileage, as defined by the IRS, is mileage driven as it relates directly to you, your spouse, or your children receiving medical care. Note that your medical mileage deduction is added to your total medical deduction. This means the medical mileage deduction will only be factored in if your total medical expenses for the 2018 tax year exceed 7.5% of your Adjusted Gross Income. If your total medical deduction does not exceed 7.5%, your medical mileage deduction will likely not apply.
Example: Suzy’s son injures his arm while playing at home and needs immediate medical attention. Suzy drives him to the local hospital, which is 10 miles from her home. Based on the 2018 medical mileage rate, Suzy’s deduction for this specific trip would look like this:
18 cents (2018 standard medical mileage rate)
20 miles (10 miles to the hospital and 10 miles back home)
.18 x 20 = $3.60
Suzy can deduct $3.60 from this specific drive to and from the hospital.
Suzy’s medical expenses for 2018 add up to $11,310. Her and her husband’s combined AGI (Adjusted Gross Income) is $96,328.
$11,310 / $96,328 = 11.7%
Suzy’s medical expenses for 2018 exceed the 7.5% minimum required by the IRS, which means each trip to the hospital can be included as part of the family’s medical deduction for 2018.
Charitable mileage rate
The last specific vehicle use you can claim a tax deduction for is charitable mileage, which means any driving you do in service of a recognized 501 (c)(3) charitable organization.
Example: Sheila volunteers for the Red Cross. She drives out to a 5k run at a park located 32 miles away.
14 cents (2018 standard charitable mileage rate)
64 miles (32 miles to the park and 32 miles back home)
.14 x 64 = $8.96
Sheila can deduct $8.96 from this specific drive to and from the 5k run at the park.
More ways to offset vehicle costs
The above standard IRS mileage deductions aren’t the only way to save on vehicle-related expenses this year. A massive repeat bill that comes with owning a car is maintenance and repair costs, which can easily climb into five-digit expenses over the span of car ownership. Car warranties exist to protect you and your wallet against car repairs and breakdowns, but once they expire you risk being left out on the open road without additional coverage.
A Vehicle Service Contract exists to pick up where your car warranty leaves off. With a Vehicle Service Contract, you can have continued peace of mind knowing your car is protected against covered repairs and breakdowns when they occur.
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