Mileage Reimbursement Tax Deduction
The Internal Revenue Service (IRS) allows United States drivers to be reimbursed for miles driven in service of a company or one's own business. This mileage reimbursement takes the form of a tax deduction. This tax deduction helps cover the depreciation of vehicles due to wear and tear during their use in a commercial capacity. For individuals who drive thousands of miles a year in the service of a company or for their own business, mileage reimbursement can add up to significant tax savings.
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Eligibility
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In order to qualify for mileage reimbursement, the vehicle used must be the property of the tax filer. Employees and the self employed qualify for mileage tax deductions. In addition, certain medical and moving miles driven qualify for mileage reimbursement. The vehicle cannot be used to transport people for hire (taxi) and the tax filer cannot operate more than five vehicles and claim the deduction. Rural mail carriers who use their own car to deliver mail do not qualify for mileage reimbursement.
Size
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For the 2010 tax year, the IRS offers standard mileage reimbursement rates to taxpayers. If the taxpayer uses the vehicle as part of a business, he may deduct 50 cents per mile driven. If the driver works for a charity, he may deduct 14 cents per mile. Medical and moving expenses receive a tax deduction of 16.5 cents a mile. The IRS publishes new rates every year, which fluctuate depending on the rate of inflation and fuel prices.
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Limits
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According to the IRS, tax filers who itemize deductions may only claim a tax deduction up to 2% of their adjusted gross income limit. Taxpayers may only claim mileage reimbursement for business miles driven. They may not claim personal vehicle use as a tax deduction. A tax filer can only claim the mileage reimbursement tax deduction for the year that the vehicle was driven. Tax deductions do not carry over to future tax years.
Filing
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The IRS allows mileage reimbursement to be filed on Form 1040 Schedule C for the self employed. Farmers may claim a deduction for farm vehicle mileage using Form 1040 Schedule F. Employees who have used their vehicle in the service of their employer must fill out Form 2016 in order to itemize car expenses.
Warning
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Claiming excessive mileage reimbursement can trigger an IRS audit, where an IRS representative will closely scrutinize the records of the tax filer for fraudulent deductions. Tax filers should keep detailed records of all miles driven so that they can prove the vehicle was for commercial use. According to the IRS, records should be kept for at least three years.
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References
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