Mileage Allowance
Mileage allowance is a term the Internal Revenue Service (IRS) uses to refer to the deductibility of expenses car owners accrue while operating a personal vehicle for business, medical, charity, or moving purposes. For 2021, the IRS suggests deducting $0.56 per mile for business use, $0.14 for charity use, and $0.16 for certain medical uses and moving (for 2020 it's $0.575, $0.14, and $0.17, respectively). Taxpayers have the option of using the IRS mileage allowance to calculate how much it costs to own and operate a car for tax-deductible purposes during a given tax year, but not the obligation. Mileage allowance is a term the Internal Revenue Service (IRS) uses to refer to the deductibility of expenses car owners accrue while operating a personal vehicle for business, medical, charity, or moving purposes. For 2021, the IRS suggests deducting $0.56 per mile for business use, $0.14 for charity use, and $0.16 for certain medical uses and moving (for 2020 it's $0.575, $0.14, and $0.17, respectively). Taxpayers have the option of using the IRS mileage allowance to calculate how much it costs to own and operate a car for tax-deductible purposes during a given tax year, but not the obligation. A taxpayer may claim a mileage allowance for travel associated with obtaining medical care and for moving residences. If you deduct miles for travel to medical care, those miles must be strictly related to the medical care, and driving those miles must be essential to accessing the medical care. If you are deducting mileage as a business expense on your income taxes, the travel must be strictly business-related, and commuting to and from work does not count as a business expense. Examples of qualified business driving include traveling to meet clients face-to-face, out-of-town business trips, or trips to buy supplies.
What Is the Mileage Allowance?
Mileage allowance is a term the Internal Revenue Service (IRS) uses to refer to the deductibility of expenses car owners accrue while operating a personal vehicle for business, medical, charity, or moving purposes. For 2021, the IRS suggests deducting $0.56 per mile for business use, $0.14 for charity use, and $0.16 for certain medical uses and moving (for 2020 it's $0.575, $0.14, and $0.17, respectively).
How the Mileage Allowance Works
Taxpayers have the option of using the IRS mileage allowance to calculate how much it costs to own and operate a car for tax-deductible purposes during a given tax year, but not the obligation. Taxpayers also have the choice of calculating the actual costs of using their vehicle rather than using the standard mileage rates. If you choose this approach, you must be sure to have documentation to prove the validity of your cost estimates.
IRS Regulation of Mileage Allowance
The IRS estimates its suggested mileage allowance based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based only on the variable costs.
If you are deducting mileage as a business expense on your income taxes, the travel must be strictly business-related, and commuting to and from work does not count as a business expense. Examples of qualified business driving include traveling to meet clients face-to-face, out-of-town business trips, or trips to buy supplies. If you combine your business travel with any sort of personal travel, like running errands, those miles are not deductible.
Deductibility of Moving and Medical Travel
A taxpayer may claim a mileage allowance for travel associated with obtaining medical care and for moving residences. If you deduct miles for travel to medical care, those miles must be strictly related to the medical care, and driving those miles must be essential to accessing the medical care.
Expenses related to moving your primary residence are often tax-deductible as long as your move is closely related to the start of a new job, and you meet the distance and time tests. The distance test requires the distance between your new job and your former home to be more than 50 miles farther than your previous employer is from your residence. You also must work full-time for at least 39 weeks during the initial 12-month period of your relocation.
Related terms:
Commuting Expenses
Commuting expenses that are incurred as a result of the taxpayer's regular means of getting back and forth to his or her place of employment and is not tax-deductible. read more
Deductible
For tax purposes, a deductible is an expense that can be subtracted from adjusted gross income in order to reduce the total taxes owed. read more
Fixed and Variable Rate Allowance (FAVR)
The fixed and variable rate allowance (FAVR) is defined as a way of reimbursing employees who use their own or leased vehicles for work-related activities. read more
Form 3903: Moving Expenses
Form 3903: Moving Expenses is a tax form distributed by the Internal Revenue Service (IRS) and used by taxpayers to deduct moving expenses related to taking a new job. read more
Incidental Expenses (IE)
Incidental expenses (IE), also known as incidentals, are tips and other small costs ancillary to a business expense. Learn when incidentals are deductible. read more
What Is the Internal Revenue Service (IRS)?
The Internal Revenue Service (IRS) is the U.S. federal agency that oversees the collection of taxes—primarily income taxes—and the enforcement of tax laws. read more
Out-of-Pocket Expenses
Out-of-pocket expenses are costs you pay from your own cash reserves, such as medical care and business trips, that may be reimbursable. read more
Principal Residence
A principal residence is the main home that a person inhabits and uses for the majority of the time. read more
Reimbursement
Reimbursement is compensation paid by an organization for out-of-pocket expenses incurred or overpayment made by an employee or another party. read more
Standard Mileage Rate
The standard mileage rate is the cost per mile that the Internal Revenue Service (IRS) sets for those who claim use of a vehicle as a deductible expense. read more