On December 13, 2016, the IRS released its annual optional standard mileage rates that may be used in computing automobile deductions during 2017. See Notice 2016-79
, and IR-2016-79
. Due to the sustained lower prices of fuel, the new mileage rate for business use of a vehicle is 53.5 cents per mile, down from 54 cents per mile in 2016. The rate for use of a vehicle for medical or moving purposes is 17 cents per mile, down 2 cents from 19 cents per mile in 2016. The charitable rate of 14 cents per mile does not vary from year-to-year because it is fixed by statute. These new rates are effective for travel on or after January 1, 2016.
The rates are based on an annual study of fixed and variable costs of operating an automobile conducted for the IRS by an independent contractor. The rates for business and moving differ because the rate for business use includes fixed costs such as depreciation, which are not allowed as medical or moving deductions. Both rates include variable expenses such as fuel. Taxpayers are also allowed to deduct items such as parking and tolls in addition to the standard mileage rate.
Use of the standard deduction rates is optional; taxpayers are always free to determine their own actual costs of operating a vehicle. However, such costs must be substantiated through detailed records, while the use of the standard rates avoids any need to substantiate the underlying costs incurred, although taxpayers must still maintain records of the miles driven and the purpose of each trip.
Notice 2016-79 also provides amounts by which taxpayers using the standard business mileage rate must reduce the basis in their automobile for depreciation that is included in the standard mileage rate. Those amounts are 23 cents per mile for 2013, 22 cents per mile for 2014, 24 cents per mile for 2015 and 2016, and 25 cents per mile for 2017.
Some companies use mileage rates higher than the standard rates to reimburse business travelers or transferees. In such cases, the excess amounts are treated as taxable wages, and are subject to withholding and payroll taxes. Amounts up to the standard mileage rates are excluded from the income of the employee. An employee cannot deduct moving expenses using the business travel rate. See Adamson v. Commissioner, 32 T.C.M. 484 (1973).
Posted by Peter K. Scott