A Simple Guide to IRS Mileage Rates for 2021 Taxesby
In addition to its 2021 business mileage rate, the IRS has also made its standard mileage rate for that year public. In his latest column, Julian Block goes in-depth so you can help clients prepare for the 2021 tax season.
I receive queries from individuals about tax deductions for car expenses. These individuals use their cars for various reasons.
Some possibilities: conduct business ventures; find out what’s going on at their rental properties or farm operations; do volunteer work on behalf of churches, schools and other kinds of charities; obtain medical care; or move for job-related reasons.
In particular, they want to know who’s helped and who’s hurt by changes in the standard mileage rates that the IRS authorizes for use by taxpayers when they calculate deductible costs for operating vehicles. What causes their concern is that the IRS annually revises its mileage rates.
Let’s start with freelancers and other self-employed individuals who use Form 1040’s Schedule C to claim deductions for business driving. The standard mileage rate for 2021 taxes is 56 cents per mile for cars, down 1.5 cents from 2020’s rate.
The IRS doesn’t narrowly define “cars.” The term includes vans, pickups or panel trucks.
Schedule C’s 56-cent rate is also the rate for Schedule E (owners of rental properties) and Schedule F (farmers).
Medical driving. 2021’s rate is 16 cents per mile, down one cent from 2020’s rate.
Who’s entitled to deduct medical driving? Individuals who claim their standard deduction amounts can’t claim any medical expenses. Only individuals who forego their standard deduction amounts and decide to use Schedule A to itemize their outlays can claim medical expenses.
Other stipulations for itemizers: Their payments are for uninsured medical expenses; those payments are sizable.
The big hurdle: Their outlays are allowable only to the extent that they exceed a nondeductible threshold. For 2021, it’s 7.5 percent of adjusted gross income.
Charitable driving. Nonitemizers can’t claim charitable driving. 2021’s rate for itemizers who claim charitable driving is a chintzy 14 cents per mile.
Our lawmakers permanently set it at this amount. (Internal Revenue Code Section 170.) Proposals to increase it to the rate for medical driving haven’t gotten anywhere.
Moving expenses for Armed Forces members. 2021’s rate is 16 cents per mile, just the same as the rate for medical driving.
Near 2017’s close, Congress teamed with then-president Trump to create what’s popularly known as the Tax Cuts and Jobs Act. It turned out to be Mr. Trump’s top legislative accomplishment.
Buried in the wide-ranging legislation is an often-overlooked provision that suspends the deduction for job-related moving expenses for the years 2018 through 2025. But the act carves out a limited exception. It doesn’t suspend the deduction for members of the Armed Forces on active duty who move pursuant to a military order and incident to a change of station.
Parking fees and tolls. Taxpayers who claim mileage allowances should avail themselves of an additional, often-overlooked break. Besides claiming allowances, they’re also allowed to take separate deductions for parking fees, as well as bridge, tunnel and turnpike tolls that they pay while they’re driving for business, etc. purposes.
Some IRS restrictions on business and medical driving. Tolls and fees that people pay to park their cars at their place of work aren’t deductible as business driving. They’re nondeductible personal expenses.
How willing is the IRS to make an exception when pandemic-inspired fears cause commuters to shun public transportation? It isn’t.
The IRS’s savvy sleuths long ago squelched another ploy. Taxpayers can’t convert the cost of travel between home and work from nondeductible commuting to deductible medical travel merely because illnesses, disabilities, or COVID-19 concerns rule out their use of public transportation.
IRS audits. What usually happens when IRS examiners question write-offs for car expenses? They won’t dispute standard-rate write-offs, provided taxpayers are able to substantiate their miles driven.
The moral for preemptive taxpayers who anticipate audits: It’s prudent for them to keep glove-compartment diaries or other records in which they list the details of when, how far and why they went, along with their outlay for parking and tolls.
Many taxpayers whose returns were targeted for audit found out the expensive way that IRS auditors are understandably dismissive of individuals who submit diaries that they prepared after being notified that their driving write-offs were going to be scrutinized.
An especially egregious ploy: the use of a 2021 diary to record earlier-year trips.
Additional articles. A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 350 and counting).