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The TCJA repealed the moving expense deduction for individual taxpayers from 2018 to 2025, except for U.S. armed forces members on active duty who move pursuant to a military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.