Many of my clients use their cars for business, medical and charitable purposes. I remind them that the IRS annually revises the standard mileage rates used to calculate the deductible costs of operating vehicles for such purposes.
Here are the rates for 2018.
For business driving, the rate is 54.5 cents per mile, up from 53.5 cents for 2017 and 54 cents for 2016.
For individuals who itemize deductibles on Form 1040’s Schedule A and include deductions for medical driving, the rate is 18 cents per mile, up from 17 cents for 2017 and down from 19 cents for 2016.
For itemizers who deduct for charitable driving, their rate is 14 cents per mile. Congress permanently set it at this amount. Proposals to increase the rate haven’t gotten anywhere.
I tell clients to avail themselves of another break: Besides claiming the mileage allowances, they also are allowed to take separate deductions for parking fees, as well as bridge, tunnel and turnpike tolls they pay while they’re driving for business, medical or charitable reasons.
Just to be clear, the IRS’s definition of "car" includes a van, pickup, panel truck or motorcycle.
Some restrictions on business driving: Fees clients pay to park their cars at their place of work are nondeductible commuting expenses. The IRS cautions they can’t convert the cost of travel between home and work from nondeductible commuting to deductible medical travel merely because an illness or a disability rules out their use of public transportation.
Suppose the IRS audits your client’s returns and questions car expenses. It won’t challenge their standard-rate deductions, provided they’re able to substantiate the miles driven. The agency disregards actual expenses. So, customers need 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 outlays for parking and tolls.
Some new considerations: The Tax Cuts and Jobs Act (TCJA) passed by Congress in December of 2017 sharply increased the standard deduction amounts for the years 2018 through 2025. So, many families will find it’s no longer worthwhile for them to itemize. Hence, they derive no tax benefits from, say, medical or charitable write-offs.
What if they find it remains worthwhile for them to itemize? The true tax benefits of their total itemized deductions may be barely larger than their standard deduction.
There’s more bad news when it comes to medical expenses. Some of my high-income clients incur hefty costs for themselves and family members. I tell them not to expect too much help from an indifferent IRS when it comes to deducting these, unless they incur costs that are well into five figures.
Their medical outlays are allowable only if they forego the standard deduction and instead itemize. Their expenses also have to be for bills that aren’t covered by insurance or reimbursed by employers.
The big hurdle: The expenses have to be sizable. Not only do taxpayers’ total itemized deductions have to exceed 2018’s much higher standard deduction, but also, medical expenses are deductible only to the extent that their total in any one year exceeds a specified percentage of adjusted gross income. Congress keeps changing the percentage.
On the plus side, clients did get some help from the TCJA. True, it abolishes or curtails many long-cherished write-offs—for example, exemptions for dependents and write-offs for property taxes and state and local income taxes.
But the TCJA includes a provision that slightly liberalizes how much taxpayers can claim for medical expenses. It replaced a threshold of 10 percent with a threshold of 7.5 for 2017 and 2018. The threshold reverts to 10 percent for the years 2019 through 2025.
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 250 and counting).