Does Federal Mileage Rate Include Fuel?
Navigate vehicle expense rules. Understand the IRS federal mileage rate's full scope for deductions and reimbursements, simplifying your finances.
The federal mileage rate, established by the Internal Revenue Service (IRS), provides a standardized method for calculating the deductible costs of operating a vehicle. This rate simplifies expense tracking for individuals and businesses incurring costs for travel related to business, medical, moving, or charitable purposes. The rate is updated annually to reflect changes in vehicle operating costs.
Components of the Federal Mileage Rate
The federal mileage rate is a comprehensive figure designed to cover various expenses associated with vehicle operation. It explicitly includes the cost of fuel. Beyond fuel, this rate also accounts for other significant variable costs, such as oil changes, tire wear, and general maintenance. Additionally, it encompasses fixed costs of vehicle ownership, including depreciation, insurance, and vehicle registration fees.
When using the standard mileage rate, taxpayers generally cannot deduct these individual costs separately. However, certain expenses, such as parking fees and tolls, are not included in the standard mileage rate and can be deducted or reimbursed separately, even when the standard rate is applied. The IRS determines this rate each year based on an analysis of both fixed and variable costs, considering factors like national average gas prices, maintenance trends, and vehicle depreciation.
Applying the Federal Mileage Rate
The federal mileage rate serves dual purposes: facilitating tax deductions for qualified individuals and providing a guideline for employer reimbursements. Self-employed individuals use this rate to deduct business-related vehicle expenses on Schedule C (Form 1040). For those driving for charitable or medical reasons, the rate can be applied to calculate deductions on Schedule A (Form 1040). Moving expense deductions, however, have been largely suspended for most taxpayers since 2018 by the Tax Cuts and Jobs Act (TCJA).
Regarding employees, the TCJA also suspended the deduction for unreimbursed employee business expenses, including mileage, from 2018 through 2025. Consequently, most employees can no longer claim a tax deduction for work-related mileage if their employer does not reimburse them. Employers often use the IRS standard mileage rate to reimburse employees for business travel, as these reimbursements are generally considered non-taxable income for the employee if paid under an accountable plan. Such reimbursements are also tax-deductible for the employer.
Record Keeping for Mileage Deductions
Record keeping is essential for substantiating mileage deductions or reimbursements. The IRS requires specific information for each trip. Key details include the date of travel, the destination, the specific business purpose of the trip, and the total mileage driven for each trip, which can be supported by odometer readings at the beginning and end of the year.
Records should be maintained contemporaneously, meaning at or near the time the travel occurs. While daily logging is ideal, weekly updates are generally acceptable. Various methods can be employed for record keeping, such as traditional mileage logs, spreadsheets, or specialized mileage tracking applications. These tools can help ensure accuracy and compliance. Taxpayers should retain these records for at least three years from the date their tax return was filed.