Taxpayers have the option of deducting the actual costs of using their vehicle for business purposes. They also can elect to use standard mileage rates to calculate their deduction, which the Internal Revenue Service provides for each tax year.
Standard mileage rate
Beginning January 1, 2021, the standard mileage rates for 2021 used to calculate deductible costs of using a car for business, charitable, medical, or moving purposes are:
- 56 cents per mile driven for business use, a decrease of 1.5 cents from the 2020 rate
- 16 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, a decrease of 1 cent from the 2020 rate
- 14 cents per mile driven in service of charitable organizations, unchanged from 2020
These rates also apply to the use of vans, pickups, and panel trucks for these purposes. Personal vehicle use cannot be deducted using these standard rates.
Employers may choose to reimburse employees using the standard rate or a higher or lower rate. Medical purposes are defined as travel with a primary purpose of and essential for obtaining medical care. Moving purposes are only for active-duty military moves under orders for a permanent change of station. Charitable service includes miles driven by volunteers while performing services for a charitable organization.
Standard mileage rate vs. actual expenses
If taxpayers choose to use the standard rate, they must use it in the first year the vehicle is available for business use but can choose in later years to use either the standard rate or actual expenses. If the standard rate is chosen for leased vehicles, it must be used for the total lease period, including any renewals.
The IRS standard mileage rates for business use are intended to cover variable operating costs, like gas, oil, maintenance and repairs, and tires, and fixed operating costs, like depreciation, lease payments, registration, and insurance.
The IRS determines rates for business use based on annual studies of changes in fixed and variable costs of operating cars. The rates for medical and moving use are based on the variable costs only. The rate for charitable use is set by law and does not change.
It's important to keep your mileage records using your phone's GPS, an app, a paper log, or an Excel spreadsheet. The IRS requires timely and "adequate records," including the dates, times, destinations, mileage, and business purpose for each business use. If the IRS audits your tax return, they could ask for this documentation. IRS Publication 463, Travel, Gift, and Car Expenses, provides the requirements for using the standard rates or actual expenses and all the related record-keeping requirements.