November 12, 2021
I guess it’s hard to find an employee who has never used a vehicle for business purposes. There are many professions that require using automobiles for business purposes frequently. For instance, real estate realtors, travel agents, brokers, etc. For those individuals, it is mandatory to know each detail about the mileage rate.
Below we will discuss what is meant under the term of mileage rate, and ways to reimburse the mileage cost used for business purposes. Also, we will clarify what the rate is nowadays, in 2021. Besides, we will review the policy for government and civil service employees. Hence, after reading the blog, you will have a clear picture of the mileage rate.
What is the mileage rate for 2021 and in which circumstances can we use it?
The term “Mileage Rate”, might seem blurred for many individuals, who haven’t yet used it for reimbursement. Hence, before starting clarifying what is the mileage rate in 2021, let’s clarify the meaning of the term itself.
The mileage rate, for some individuals, is associated with a mileage allowance, deductible mileage, or per diem. In simple words, the mileage rate determines how much reimbursement you get, after using a private car for business purposes. For instance, if you are a real estate realtor and visit customers with your own automobile, for business purposes you are allowed to get reimbursement of the cost. On average, drivers cover about 14,000 miles per year. The share of business trips can be more than 40% out of the 14,000 miles. Hence, it’s a good idea to use the option to reimburse covered miles accordingly upon the rate.
Any transportation costs are deductible as business operating expenses if they are necessary for the business., Below you can review frequently asked questions regarding the issue.
Does the mileage rate apply to specific vehicles?
No, it doesn’t. No matter which type of car you are using for the business. Whether it is a sedan, SUV, van, pickup, or panel truck, in any case, you are allowed to get reimbursement.
Is the federal mileage rate fixed?
No, it is not. The rate is changed annually. The standard mileage rate is set by the U.S. Internal Revenue Service (IRS).
Is the rate different for different business purposes?
Yes, it is. There are three different standard mileage rates for a business, charitable, medical, or moving expense purposes.
I guess after reading all the above-mentioned information, you already know what the term means. Now, it’s time to answer the topic and explore what is the current mileage rate, in 2021. As you already know, there are different standard mileage rates. For business purposes the mileage rate is 56. In case you use a vehicle for charity purposes, then the rating is 14. Notably, the charity rate is fixed and hasn’t changed over the decade. And the rate for medical moving expenses is 16.
After clarifying the general details about the mileage rate, let’s move on and explore further details about the government mileage rate.
All about the government mileage rate
In general, there are two ways to get reimbursement for your business miles. You can get reimbursement either via fixed, annual mileage reimbursement rate or through deducting the actual expenses. Currently, the standard mileage rate for business use is 56, based on an annual study of the fixed and variable costs of operating an automobile.
According to the U.S. Internal Revenue Service (IRS) “It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, unless they are members of the Armed Forces on active duty moving under orders to a permanent change of station”.
Here is another important detail that you should note about the federal mileage reimbursement. It’s notable that you should use the standard rate in the first year you use a vehicle for business. In other cases, you are forever foreclosed from using that method for the car. But if you use the standard rate for the first year, and then change your mind, you can select another option for the second year. After this, you can still switch back to the standard rate.
All in all, in case you have not yet decided which option works for you the best, it’s preferable to use the standard rate at first and after this try another option. That way you will test both options and decide which one works for you the best.
Reimbursement via civil service mileage rates
Now it’s time to move on to the most interesting part of the topic. After clarifying all the needed information, you might wonder how to use the information in practice and get reimbursement. Generally, you have two options for getting reimbursement of the transportation costs:
- Use standard mileage rate
- Deduct actual expenses
Generally, most employees use that option, since it is much simpler than deducting actual expenses. You should simply note how many miles you have covered due to business purposes. In case you choose to get reimbursement by using the standard rate, you should multiply business miles by the rate, set by the Internal Revenue Service (IRS). For instance, if you’ve covered 100 miles for the business purpose, you should multiply 100 by 56 (cents), since it is the annual rate in 2021.
It is notable that if you choose the federal mileage reimbursement rate, then you are not entitled to request actual operating expenses. Those expenses can be repairs, oil, insurance, registration fees, etc. As all those costs are factored into the determined annual mileage rate. But still, there are some expenses that you can deduct, even if you have chosen the first option.
- Parking fees;
- Personal property tax, paid while purchasing the automobile;
- The interest rate on a car loan;
All in all, nonetheless it might seem confusing to clarify all details about the government mileage rate. Hopefully, you have learned a lot upon reading the blog.
Now you know every detail about the reimbursement of business trips. What are the two options for getting reimbursement of business miles. In which cases you can get the reimbursement. How to calculate the reimbursable cost. What is the standard mileage rating, and many other details. I guess, reviewing all those details helped you to have a clear vision of the topic.