The Flip Side of Low Gas Prices

Feb 18, 2016

The good news: gas prices, following a drop in the price of oil, have steadily declined over the last several months. In many places, gas is now well below $2.00 per gallon. No doubt, we all enjoy some relief every time we fill up, but it is worth considering the flip side to low gas prices.

Transportation_Car5The not-quite-as-good news: reduced standard mileage rates from the Internal Revenue Service. Gas prices are one of many components of the formula the IRS uses to determine the standard mileage rates for a given year. So, if gas prices fall, the mileage rates for business use of vehicles will also decrease. The IRS offers a standard mileage rate as a simplified alternative to tracking actual vehicle expenses.

The IRS recently issued Notice 2016-1 which outlines the rates for 2016:

  1. For the business use of a car, pickup truck, panel truck, or van, the rate for 2016 will be 54 cents per mile, down 3.5 cents from the 2015 rate of 57.5 cents per mile
  2. Mileage incurred for medical or moving purposes may be deducted at 19 cents per mile, four cents lower than for 2015
  3. Miles driven for service to a charitable organization are still deductible at 14 cents per mile, unchanged from 2015
  4. The depreciation component of the standard mileage rate also remains unchanged for 2016 at 24 cents per mile.

If you use the standard mileage rate, you are not allowed to claim additional deductions for actual costs of owning the vehicle, including depreciation, lease payments, repairs, maintenance, insurance, gas, oil, tires, and registration fees.

Also, you are not permitted to use the standard mileage rate if:

  • You use 5 or more cars at the same time in your business
  • You claimed a depreciation deduction for the care using any method other than straight-line depreciation
  • You claimed a Section 179 deduction on the car
  • You claimed the special depreciation allowance on the car

As always, be sure to keep track of your mileage, and check with your tax advisor to figure out the best ways to deduct your vehicle expenses.

By: Jake Freppel, CPA

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