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Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Mileage Allowance

What it is:

The term mileage allowance refers to a variety of travel allowances allowed by the IRS at a specific rate per mile traveled while on business or for other purposes recognized by the IRS.

How it works (Example):

For an individual, the allowances would be applicable for travel required for medical reasons, moving purposes, employee travel that was not reimbursed, or charity efforts. The medical and unreimbursed employee travel expenses are deductible subject to certain thresholds. Travel that was needed for charity purposes is deductible without any thresholds. Allowable moving expenses are also subject to specific regulations.

There are two methods for deducting car or travel expenses on one’s annual tax return: actual cost and standard allowance. The actual cost is deducting the actual cost spent on transportation during the course of business or other deductible event. Using the standard allowance method, mileage is multiplied by the allowance per mile specified for that particular activity. It is important to note that the same method must be used for all travel during a specific tax year.

For example:

Actual expenses 

Car Expenses on a Business Trip $100.00
Parking and Tolls $25.00
Total Expenses $125.00

For the same travel is one applies the standard mileage rate of $0.585 the following would be the relevant calculations:

Mileage incurred on the same trip of 200 miles (200 * .585) $117.00
Parking and Tolls $25.00
Total Expenses $142.00

In the second example above, it would the business or individual should calculate the mileage allowance based on the standard mileage allowance approach.

Why it Matters:

Transportation expenses that count toward mileage allowance may represent a significant tax deduction, so due consideration should be applied before choosing one of the calculation options for the entwrite-downe tax year.

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