What!?! An increased tax break? At a time when even the Inflation Lovers are talking a line about "balancing the budget"? Outrage, outrage, cry the big spenders. Yet, there it is: an increase in a tax deduction (technically: an income "adjustment" increase, for most of us). And what's more, it's a tax break that almost everyone can use.
What I'm talking about is the "standard mileage rate" that the IRS allows for taking business-transportation deductions. It has been raised from 18.5 to 20 cents per mile for the first 15,000 miles you drive your car for business. And, for job-related use in excess of 15,000 miles in any one year, the rate is up from 10 to 11 cents per mile.
Now, this isn't really cause for too much rejoicing. For one thing, the standard mileage rate doesn't come near the real costs of driving your auto. And for another thing, the rate increase has been long overdue and long anticipated. It's been quite a while since the General Services Administration and the American Automobile Association released studies claiming, respectively, that it costs you 21.5 and 21.2 cents per mile to drive your car; it's been even longer since the Hertz Rent-a-Car people—who know better—showed that it costs about 36 cents a mile to drive your car when it's new, then decreases.
But that's quibbling. With the government's tax grab going up every year, any tiny break tends to thrill. So, here's how the standard mileage rate works: As most everyone knows, expenses incurred for business purposes are deductible—whether on the Schedule A (itemized deductions), a Schedule C (self-employment income), or a Form 2106 (Employees' Business Expenses), depending on what your situation is. One such deductible expense is running an automobile. And there are two ways that such expenses can be taken on your income tax return.
1. You can list all your auto-related expenses, adding them up and then taking a percentage of the total as your deduction. Along with depreciation, that percentage is figured according to how many miles you drove your car for business. This method is the Big Money way to take your business-mileage deduction—you can almost always beat the standard mileage rate by keeping all your auto expense records and receipts. But it's only for those who can put up with the constant record-keeping requirements. Think about it: gas, oil, repairs, tune-ups, new speakers, tires, reupholstering, license plates, fees, taxes, tools, inspections, interest, insurance, lubrication, etc., etc., ETC. But I must admit, I have great admiration for such people. When they come into my office with all those deductible receipts and records, they make me feel good.
2. On the other hand, the easier way, which most people opt for, is the standard mileage rate, that is, 20 cents per mile for the first 15,000 miles, and 11 cents for each business mile driven thereafter. Here's the tax break you'd get on your business mileage if you drove 20,000 miles last year in connection with your job: 15,000 business miles, times 20 cents per mile, is $3,000; plus 5,000 miles times 11 cents a mile, equals $550. The total deduction would be $3,550, and that ain't bad, especially considering the amount of miles some people drive for their job. Of course, it's not as much as the real cost of running your car…but you didn't keep all those expense receipts over the entire year, did you?
Now, a few warnings. First of all, commuting miles are not deductible (except for those who drive to "temporary job sites" outside the normal area of their business). I know, I know, they're obviously "business-related" miles, but the law doesn't allow it, period. Second, if you take a business-mileage deduction, you have to be ready to tell when and where those miles were driven. And you've got to be able to nail down the total miles you drove during the year. If you somehow forgot to check your car odometer on New Year's Day, you can often get a good idea of what it said by checking repair or oil change receipts (like the ones they stick on the edge of your car door). As far as meeting the when-and-where requirement, the best thing is to keep a mileage log in your auto and fill it out over the year. Otherwise, there are many ways to recreate and support your miles driven.
Keep in mind now that there's a lot more to taking business-mileage deductions than what I've said here. It's a very complex area, strewn with "grey areas" under the tax law. If you're unsure, you need to talk with a professional. You should talk with a pro anyway, as the good ones can almost always find deductible business mileage that a client didn't know about.
One other thing. This is the last chance I'll have before the presidential election to remind you of the political contribution credit. If you're single and give $100, you get the maximum credit of $50, which comes off the top of your tax owed. If you're married and filing jointly, a $200 contribution to a candidate will get you a $100 credit. Since the law was designed to enable politicians to bury their snouts ever deeper into the public treasury, a contribution to a tax-fighter destroys the intent of the law. Take your choice: the Libertarians are the most consistent and vociferous, but the Republicans this year are listening to the likes of tax-reduction apostles Milton Friedman and Jack Kemp…and might even move to reduce taxes if Reagan gets in. So send off that check now. Help turn a pork barrel law against the porkers.
Timothy Condon, a member of the Florida Bar, is a tax specialist with the Condon & Vollrath Tax Service in Tampa, Florida.
This article originally appeared in print under the headline "Taxes: Auto Tax Savings".