The optional standard mileage rates for business use of a vehicle will decrease once again in 2021 after increasing significantly in 2019

The optional standard mileage rates for business use of a vehicle will decrease once again in 2021 after increasing significantly in 2019, the IRS announced in Notice 2021-02. For business use of a car, van, pickup truck, or panel truck, the rate for 2021 will be 56 cents per mile after decreasing to 57.5 cents per mile in 2020, down from 58 cents per mile in 2019. Taxpayers can use the optional standard mileage rates to calculate the deductible costs of operating an automobile.

Because the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97, suspended the miscellaneous itemized deduction under Sec. 67 for unreimbursed employee business expenses from 2018 to 2025, the notice explains that the standard mileage rate cannot be used to claim a deduction for those expenses during that period.

However, self-employed taxpayers can deduct automobile expenses if they qualify as ordinary and necessary business expenses. And an exception to the disallowance of a deduction for unreimbursed employee business expenses applies to members of a reserve component of the U.S. armed forces, state or local government officials paid on a fee basis, and certain performing artists. They are permitted to deduct mileage expenses on line 11 of Schedule 1, Additional Income and Adjustments to Income, of Form 1040, U.S. Individual Income Tax Return, and may continue to use the 56 cents-per-mile business standard mileage rate.

The standard mileage rate also can be used under Rev. Proc. 2019-46 as the maximum amount an employer can reimburse an employee for operating an automobile for business purposes without substantiating the actual expense incurred.

Under Notice 2021-02, driving for medical care or for certain limited moving expense purposes for members of the armed forces may be deducted at 16 cents per mile, which is 1 cent lower than for 2020.

The TCJA repealed the moving expense deduction for individual taxpayers from 2018 to 2025, except for U.S. armed forces members on active duty who move pursuant to a military order and incident to a permanent change of station to whom Sec. 217(g) applies.

The rate for service to a charitable organization is unchanged, set by statute at 14 cents per mile (Sec. 170(i)).

The portion of the business standard mileage rate that is treated as depreciation will be 26 cents per mile for 2021, 1 cent less than 2020.

To compute the allowance under a fixed-and-variable-rate (FAVR) plan, the maximum standard automobile cost is $51,100 for 2020 for all automobiles (including trucks and vans), $700 more than in 2020. The FAVR amounts were recalculated in 2018 after the TCJA retroactively amended the bonus depreciation rules. Under a FAVR plan, a standard amount is deemed substantiated for an employer’s reimbursement to employees for expenses they incur in driving their vehicle in performing services as an employee for the employer. Those rules were also updated in IRS regulations (see T.D. 9893).

— Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a JofA senior editor.

Standard Mileage Rates Article

Most taxpayers can deduct up to $300 in charitable contributions without itemizing deductions

COVID Tax Tip 2020-170, December 14, 2020

Following tax law changes, cash donations of up to $300 made this year by December 31, 2020 are now deductible without having to itemize when people file their taxes in 2021.

The Coronavirus Aid, Relief and Economic Security Act includes several temporary tax law changes to help charities. This includes the special $300 deduction designed especially for people who choose to take the standard deduction, rather than itemizing their deductions.

This change allows individual taxpayers to claim a deduction of up to $300 for cash donations made to charity during 2020. This deduction lowers both adjusted gross income and taxable income – translating into tax savings for those making donations to qualifying tax-exempt organizations.

Before making a donation, taxpayers should check the Tax Exempt Organization Search tool on IRS.gov to make sure the organization is eligible for tax deductible donations.

Cash donations include those made by check, credit card or debit card. They don’t include securities, household items or other property. Though cash contributions to most charitable organizations qualify, some don’t. People should review Publication 526, Charitable Contributions for details. Cash contributions made to supporting organizations are not tax deductible.

The CARES Act includes other temporary allowances designed to help charities. These include higher charitable contribution limits for corporations, individuals who itemize their deductions and businesses that give food inventory to food banks and other eligible charities. For more information, visit the Coronavirus Tax Relief page of IRS.gov.

By law, recordkeeping rules apply to any taxpayer claiming a charitable contribution deduction. Usually, this includes getting a receipt or acknowledgement letter from the charity before filing a return and retaining a cancelled check or credit card receipt.

Itemizing Deductions Article

Most taxpayers can deduct up to $300 in charitable contributions without itemizing deductions

New things taxpayers should consider as they get ready to file taxes in 2021

COVID Tax Tip 2020-172, December 16, 2020

When people get ready to file their federal tax return there are new things to consider when it comes to which credits to claim and what deductions to take. These things can affect the size of any refund the taxpayer may receive.

Here are some new key things people should consider when filing their 2020 tax return.

Recovery rebate credit

Taxpayers may be able to claim the recovery rebate credit if they met the eligibility requirements in 2020 and one of the following applies to them:

  • They didn’t receive an Economic Impact Payment in 2020.
  • They are single and their payment was less than $1,200.
  • They are married, filed jointly for 2018 or 2019 and their payment was less than $2,400.
  • They didn’t receive $500 for each qualifying child.

Refund interest payment

People who received a federal tax refund in 2020 may have been paid interest. The IRS sent interest payments to individual taxpayers who timely filed their 2019 federal income tax returns and received refunds. Most interest payments were received separately from tax refunds. Interest payments are taxable and must be reported on 2020 federal income tax returns. In January 2021, the IRS will send a Form 1099-INT, Interest Income, to anyone who received interest of at least $10.

New charitable deduction allowance

New this year, taxpayers who don’t itemize deductions can take a charitable deduction of up to $300 for cash contributions made in 2020 to qualifying organizations. For more information, people should review Publication 526, Charitable Contributions.

Other refund-related reminders

  • Taxpayers shouldn’t rely on receiving a refund by a certain date, especially when making major purchases or paying bills. Some tax returns may require additional review and processing may take longer.
  • Refunds for taxpayers claiming the earned income tax credit or additional child tax credit can’t be issued before mid-February. This applies to the entire refund, not just the portion associated with this credit.
  • The fastest and most secure way to receive a refund is to combine direct deposit with electronic filing, including the IRS Free File program. Taxpayers can track the status of their refund using the Where’s My Refund? tool.

Things to Consider Article