Standard IRS Mileage Rates: 2021 Guide for the Self-Employed
Rules around claiming the standard IRS mileage rate deduction have changed regularly in recent years. Who and what qualifies has particularly been a source of confusion due to the Tax Cuts and Jobs Act of 2017.
This guide will walk you through the complete list of the 2021 IRS mileage rates, what counts, what doesn’t count, and how to keep a record for compliance purposes.
Here’s What We’ll Cover:
What Are the IRS Standard Mileage Rates for 2021
The IRS allows you to deduct a standard mileage rate from your earnings to lower your taxable income. The mileage reimbursement rate slightly changes from year to year. Here are the rates for 2021:
- Business mileage rate: 56 cents per business mile
- Charity mileage rate: 14 cents per mile
- Moving purposes and medical mileage rate: 16 cents per mile
Choosing a Deduction Method
There are two main ways to calculate the deductible cost associated with your dedicated vehicle:
- Calculating the actual costs (fixed and variable costs)
- Using the standard mileage rate deduction
You have to choose one or the other.
If you prefer the standard mileage rate, you must opt for this option from the first year your car is used for business. In other words, you can’t choose the actual expenses option this year and switch to the standard mileage rate option next year. However, the reverse is allowed.
What Qualifies for Standard Mileage Rate?
The deductible mileage rate of 56 cents per mile applies if you drive an automobile for business purposes. This includes a leased or owned car, van, pickup, or panel truck.
The following scenarios and costs qualify if you choose to be reimbursed using the business standard mileage rate:
- Business-related tolls and business-related parking fees (an exception is if you pay to park at your workplace).
- In some circumstances, certain expenses associated with renting a car and using a vehicle for hire while on a business trip qualify.
- Driving to customers and projects.
- The business part of the interest on your car loan (for example, if you use the car 70% for business and 30% personal, this means you can deduct 70% of the interest you've paid in the year for the car loan).
You can't claim the rate for business miles in the following circumstances:
- If you use more than 4 cars at the same time. For example, if you have 7 employees who simultaneously use 7 of your company cars to drive to clients at 11 AM, you’ll need to use the actual costs method.
- You can't deduct miles driven between your home and a work office unless your home is your principal place of business.
- If you choose the actual cost tax deduction, you can't claim the IRS mileage rate. This means if you deduct expenses such as gas, oil, vehicle registration fees, insurance, lease payments, depreciation, and other maintenance and repair expenses.
Traveling for a Charity-Related Purpose
You can use the charitable mileage rate of 16 cents per mile for all charitable miles driven that were not reimbursed. The charitable rate applies if the miles driven for charity purposes were in offering gratuitous services to a qualifying charitable organization, not just any organization or individual.
Traveling for Moving or Medical Purpose
The Tax Cuts and Jobs Act temporarily suspended the ability for you to be reimbursed for travel-related to moving unless you're an active duty member of the Armed Forces moving under orders to a permanent change of station.
To qualify for the medical mileage deductions for medical purposes, medical expenses have to be over 7.5% of your adjusted gross income. In addition to reimbursement for medical miles, medical care expenses include dental care as well as parking fees and tolls.
Travel to the gym or for the general improvement of your health isn't classified as medical miles.
What Records Do You Need to Claim a Mileage Deduction on Taxes?
To claim mileage on your taxes, you and your employee need to log miles driven for business purposes as they happen. This evidence can be in an organized diary, a mileage tracking app, or a similar record. You also have to provide documentary evidence of your travel expenses and mileage, such as receipts.
Track Miles on the Go
Software like FreshBooks’ mileage tracking app makes it easy to keep track of miles driven for business purposes. All you have to do is swipe the screen to mark it as a business or personal trip.
Paper logs can be tedious because you have to ensure the paper log looks presentable throughout the year. You’re also responsible for making sure you add all the numbers correctly. FreshBooks’ mileage app takes care of all of this for you.
Try the automated mileage tracker app.
More Resources on Small Business Accounting
- What Is a Write-Off? Definition and Examples for Small Businesses
- Your Complete Guide to 2021 U.S. Small Business Tax Credits