IRS releases the standard mileage rates for 2021 revealing a greater decrease from last year.
The verdict is in — IRS mileage rates for 2021 are down from last year. If you qualify for mileage deduction, these changes could directly impact your taxable income. To make sure you’re prepared for the year ahead, take a look at the IRS standard mileage rates for 2021 and find out just how easy it is to calculate your reimbursement.
The IRS announced the official federal standard mileage rates for 2021 on December 22nd, 2020. Effective January 1st, 2021, the standard mileage rates to operate a vehicle, van, pickup, or panel truck will cost:
To help alleviate the financial costs of operating your business, the IRS lets taxpayers deduct a portion of that expense using the standard mileage rate. The IRS determines these rates on a number of fixed and variable factors that affect drivers each year. For example, a steady uptick in fuel costs in 2021 made driving to and from meetings more expensive in the fiscal year.
Here are the basic guidelines for small businesses and self-employed taxpayers:
Whether you have employees driving company cars or allow the use of personal vehicles for work, many employers want to fairly reimburse individuals for these auxiliary expenses. Though mileage deduction remains optional in most U.S. states, there are some that mandate mileage tax breaks in 2021. This includes California, Illinois, and Massachusetts.
Independent contractors are permitted mileage deduction for select business costs accrued throughout the year. If you are self-employed and use your vehicle for both personal and professional use, these expenses can add up quickly. In particular, rideshare services, like Uber and Lyft, employ millions of independent contractors each year who rely on mileage deductions. With that said, self-employed workers can only deduct business miles. This is why it’s crucial to keep track of distances traveled for work purposes versus personal.
The IRS offers two ways to reduce your tax burden in 2021. The standard mileage rate or the actual expense method. Both yield advantages and disadvantages, and the better method will often differentiate from year to year. However, it is best advised to use the standard mileage rate for the first year that you make use of your car for business purposes.
Even before you’ve narrowed down your approach for mileage reimbursement, the most important step in calculating mileage involves keeping an accurate log of all business, charity, medical, and in some cases, moving miles. This will determine how much you should be reimbursed for mileage in 2021. The good news is you can automatically track your taxable mileage with MileIQ. Our efficient system takes the stress out of staying organized each week and keeps an accurate record of all taxable miles in 2021.
The IRS standard mileage rates for 2021 take into account all variable costs of operating a vehicle. This covers your gas, oil changes, tires, maintenance and other repairs performed within that annual mark. On top of that, you can compute fixed costs into the bargain. This includes automotive insurance, registration, yearly depreciation, and payments.