Don't Mess With Taxes

Photo by Xingchen Yan on Unsplash

If your work involves driving, the Internal Revenue Service has some good news for your 2024 business trips.

Today, the tax agency announced that on Jan. 1, 2024, the standard optional mileage rate you can use to claim those eligible miles will go to 67 cents per mile. That's a 1.5 cent increase over the 2023 mileage rate.

However, the other two mileage rates that the IRS evaluates and adjusts each year are going down.

Travel for medical and, in the case of qualified active-duty members of the Armed Forces, moving purposes will be worth less, tax-wise, in 2024. Those standard optional mileage rates will be 21 cents per mile in the new year, a decrease of 1 cent from 2023.

Then there's the rate you can claim for miles driven in service to nonprofit. That's still 14 cents per mile because it's set by law, and is not adjusted for inflation. This rate can only be changed by Congress.

These rates apply to cars, vans, pickups, or panel trucks, regardless of whether they are gasoline- or diesel-powered or electric or hybrid-electric vehicles.

Since there are still a few deductible driving days left in 2023, the table below shows the rates for this year and 2024.

Tracking tax-related travels: Knowing your tax-deductible mileage amount is just part of the equation. You also have to accurately record the number of miles you drive each year.

The business miles can help you reduce taxes on your self-employment income. This obviously is a major write-off for those who are their own boss full-time. But the deduction also applies to gig jobs you have in addition to your wage paying main work.

You have a couple of ways to track this travel. You can keep complete and contemporaneous records of all your actual business-related auto usage (more on this in a minute) or you can claim the optional standard mileage amount in the above table.

Why the mileage rates differ: Most folks who claim the business miles tend to complain that the rate is not really high enough. So how does the IRS arrive at that figure?

The annual mileage rate changes generally reflect the way the economy and inflation are going. Some years, it increases. Other times, the mileage rate goes down. And in some years, like 2024, the rates are mixed.

The differences are due to the data the IRS uses to calculate the different types of potentially tax deductible driving.

The standard mileage deduction amount is adjusted annually based on the yearly study of two automotive factors, the fixed and variable costs of operating an auto. The tax agency explains in Notice 2024-08 (yep, the IRS is getting a jump on the New Year in its notice numbering) that it hires an independent contractor to calculate the mileage rates, aside from the charitable one that's set by law, and to evaluate the fixed and variable costs of operating a vehicle.

The business rate is determined using both the fixed and variable costs studies. The rate for medical and moving purposes is based only on the car's variable costs.

The biggest fixed automotive cost is the vehicle price. The biggest variable cost is gasoline. It's those different vehicular cost categories that account for the differences in the rates.

Since the business driving rate is based on both sets of vehicle costs, when it goes up, the amount tends to be more than the medical or moving categories. When the variable costs go down, like the fuels prices that have been dropping of late, the medical and moving rates are reduced, too. That's what's happening in 2024.

And while the motor methodology is not technically inflation-based, since the tax-related figures tend to change, the annual announcement of the upcoming standard mileage rates — this post — always wraps up the ol' blog's annual 10-part inflation series.

Business mileage deduction choice: Many business taxpayers use the optional standard rate when figuring how much in mileage costs they can claim. It's easy and just requires you to keep track of your work-related miles.

But note that you always have the option of calculating the actual cost of using your vehicle rather than using the standard mileage rates.

The mileage deduction choice, like every other tax decision, depends on your personal situation.

In most instances, it's a no-brainer to use the one that will give you more tax savings. Some filers, however, find convenience is more valuable, especially if the tax-saving difference is, from your perspective, negligible.

Make your choice wisely, especially if you're claiming the business mileage rates for the first time. The IRS points out that you can't use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. Yeah, that's a lot of IRS tax-speak for additional calculations you'll have to make here.

The upshot is that if you initially opt for the actual expenses method the first time you ever make a business mileage tax claim, you're stuck using that method for as long as you use that vehicle.

If, however, you choose the optional standard mileage rate when you first put a vehicle into business use, in later years you can choose to keep using the fixed-mile rate or switch to totaling your auto's actual expenses.

Note, too, that if you lease your business use vehicle, you must use the standard mileage rate method for the entire lease period (including renewals) if the standard mileage rate is chosen.

No more miscellaneous mileage claims: What if you drive your car for work but you're an employee and not your own boss? Sorry, but those work-related miles as a wage-earning staffer aren't of any tax use, for now.

The Tax Cuts and Jobs Act (TCJA) of 2017 eliminated through 2025 the miscellaneous itemized deduction on Schedule A where employees could claim unreimbursed business expenses, including the costs of operating an automobile in connection with their jobs.

Again, this affects only salaried workers who drive in connection with their jobs. In these cases, you need to talk with your employer about an adjusted compensation or reimbursement method.

If, however, you are self-employed, the miles you travel for your company still count. You can still claim your qualifying work-related miles on your taxes.

In addition, Armed Forces reservists, qualifying state or local government officials, educators and performing artists also still can deduct unreimbursed business expenses under the TCJA.

If any of these exemptions apply to you and you're still a bit confused, don't freak out. Your tax preparer, tax software, or IRS Tax Topic 510, Business Use of a Car, can help.

A medical mileage tax Rx: The TCJA also greatly increased the standard deduction amount (you can read about those 2024 increases in Part 2 of the annual inflation series), which means most taxpayers use that method instead of itemizing tax deductions on Schedule A.

However, some filers still find itemizing gives them a larger deduction. In many cases, that's because they have a lot of deductible medical expenses. Among those costs that count here is medical-related travel.

The 22 cents per mile rate for 2023, and 21 cents per mile for 2024, include road trips to medical treatments (and, in some instances, medical conferences), as well as when you drive to the pharmacy to pick up your prescriptions. The IRS has a full (and ever changing/expanding) list of deductible medical expenses.

Moving expenses also limited by tax reform: The write-off for moving mileage remains, but as noted earlier — and again thanks to the TCJA — only for certain taxpayers.

Until tax reform was enacted in late 2017, any person who moved for job reasons (and who met the distance and time rules) could claim their relocation costs on their taxes. Now, however, civilians are out of luck. This tax deduction is available only to members of the military.

Specifically, this above-the-line tax deduction currently is only available to U.S. Armed Forces personnel who are on active duty and who move pursuant to a military order related to a permanent change of station.

Charitable driving cheated: Some who choose to itemize also count on deductible charitable donations to increase their itemized tally. Those gifts to nonprofits can include miles driven in connection with services for and by an IRS-authorized charity.

Common charitable mileage claims include volunteer delivery of meals to the home-bound or providing transportation to individuals who are getting help from a qualified charity.

This rate is still at 14 cents per mile where it's been for years.

The reason for no fluctuation from the prior year? As noted earlier in this post, this rate is set by statute and therefore is not affected by inflation.

If you agree with me that it should be inflation adjusted, too, let your U.S. Representative and Senators know.

Exiting the inflation highway: As noted earlier in this post, the IRS' annual mileage rates notice technically isn't part of the agency's overall inflation adjustments that are put out in two major announcements, generally each fall.

But the mileage rate adjustments merge nicely into that changing tax amounts roadway. So each year it is the final post in the annual look at how inflation affects myriad parts of our taxes.

I know many of you are like the hubby, focused on getting to your destination as quickly as possible. I, on the other hand, enjoy the travel there. Whichever traveler, tax or real life, you are, thanks for reading this final inflation series post and the other nine.

And if you're like my better half, thanks especially for your patience with the time it took to finish up the series!

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