What is Mileage Allowance?

What is mileage allowance? It's a tax deduction for the use of your vehicle for business, charity, moving or medical expenses. Click through to learn more.What is Mileage Allowance?

The Internal Revenue Service (IRS) allows people who use their vehicles for business, charity, moving or medical expenses to take deductions on those expenses; this is called mileage allowance. The IRS deducts a certain cent-per-mile; the IRS determines the deduction each year. This is also referred to as the “standard mileage rate.”

The business mileage rates are based on an annual study of fixed and variable costs of operating a vehicle, while the moving and medical cost are based on just the fixed costs. The charitable rate is set by a statute, so it does not change from year-to-year.

In order to claim the mileage allowance you have to keep records of your miles. In the event that you are audited the IRS will require proof of your mileage. Keeping a mileage log will help you prove that you claimed a necessary deduction. You should include the miles you drove, the date and the reason for the trip on your mileage log.

Taxpayers can choose not to use the mileage allowance and instead calculate the actual cost of using his or her vehicle for business, charity, moving or medical purposes. If you choose to do this, make sure that you keep records of each of the costs of using your vehicle.

Mileage Allowance Scenario

Janice Price is a real estate agent. She frequently uses her car for business purposes. She’ll drive clients around to look at homes. She has to drive to homes she’s selling to put signs out front. Janice also drives to meetings at title companies. She puts a lot of miles on her personal car in order to conduct business. When she files her taxes, she takes the mileage allowance to help recoup some of those costs.

Rather than calculate the actual cost of using her car, Janice opts to use the standard mileage deduction. In order to do this she keeps a mileage log in her car and notes her odometer reading when she leaves and when she finishes a trip. She also notes the date of the trip and the reason for the trip.

When it comes time to pay her taxes Janice uses her mileage log to let her accountant know how much driving she did. Her accountant then puts her miles in and takes a deduction based on her numbers.

 

What is mileage allowance? It's a tax deduction for the use of your vehicle for business, charity, moving or medical expenses. Click through to learn more.