Mileage Tax Deduction Vs. Reimbursement for Automobile Expenses
Mileage deductions and reimbursements each offer tax breaks and help offset the cost of driving your vehicle for certain purposes. However, the benefits of a mileage reimbursement are much better than what you get from mileage deductions. For either, you will need to keep a record, or mileage log, to meet Internal Revenue Service documentation requirements.
The IRS publishes standard mileage rates each year that are adjusted to reflect the average cost of operating an automobile, van or similar vehicle. The standard rates set the maximum allowance for tax deductions or tax-free reimbursement of vehicle expenses. As of 2012, the rate for business use of a personal vehicle was 55.5 cents per mile. If you drove your automobile to do work for a charitable organization, the rate was 14 cents per mile. Using your car for medical transportation or moving allowed you to deduct or get a tax-free reimbursement of up to 23 cents per mile.
When you are reimbursed for mileage, you are paid a cash amount. For example, your employer might pay you 55.5 cents per mile for work-related driving (not including your usual commute). This is considered a business expense and is not subject to taxes. You may not deduct an allowance for mileage for which you are reimbursed. However, if you are reimbursed only part of the IRS standard rate, you may take the remainder as a tax deduction. For example, if you are reimbursed 40 cents per mile for business use of your automobile and the IRS rate is 55.5 cents per mile, you can deduct the remaining 15.5 cents per mile.
When you deduct mileage, you subtract the amount of the deduction from your gross income, which reduces your taxable income. Suppose you drove 1,000 miles as part of your job duties. At the 2012 rate, that comes to a deduction of $555 of income. You also have the option of deducting actual operating expenses instead of using the IRS mileage rates. In that case, you have to keep records of all of your vehicle expenses.
Mileage reimbursements are worth more to you than deducting a mileage allowance on your tax return. A reimbursement for mileage pays you 100 percent of the mileage allowance. A reimbursement of 55.5 cents per mile for 2,000 miles of work-related driving thus means you get $1,100, all of which is tax free. However, if you take a tax deduction instead, your tax savings are equal to $1,100 multiplied by your highest tax rate. If you are in the 28 percent tax bracket, this works out to a tax savings of $308. The mileage deduction is an itemized deduction, so it is not available to those who take the standard deduction.
Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.