The Internal Revenue Service is giving some taxpayers who use their cars for business a much-appreciated bonus: a boost of three-and-a-half cents per mile, bringing the mileage deduction to 58 cents per mile in 2019.
The increase is consequential for freelancers and business owners who drive their cars for business-related purposes. For instance, if you drive your car more than 100,000 miles for work over the next few years, you could take a total $58,000 in deductions. The typical driver logs about 14,000 miles per year.
Even so, not all workers are enjoying the same car-related deductions, said Lisa Greene-Lewis, a tax expert and Certified Public Accountant for Intuit's TurboTax, a tax preparation software program. The Tax Cuts and Jobs Act eliminated a miscellaneous itemized deduction for unreimbursed employee travel expenses. Before 2018, the miles driven from your workplace to another work-related location and back to your place of work were deductible.
The IRS' higher mileage deduction "is a pretty good amount and it helps the one-in-five Americans who are now self-employed," she said. "But under the new tax reform law, workers employed by a company will no longer be able to claim the mileage they run up by using their car on the job."
So, if you want those "unreimbursed expenses," Greene-Lewis advises workers to "negotiate with their employer."
The costs of car ownership
The 3.5 cent hike may seem generous when gas prices are dropping, but Greene-Lewis points out the IRS makes this decision each May based on a study of the previous year's car ownership costs. So next year's increase might not be as lavish.
Meanwhile other major expenses associated with car ownership and driving are still going up. These include the cost of buying a car, which thedescribes as a seller's market, and the cost of purchasing insurance, which continually increases. Car owners are also on the hook for tires, fluids, maintenance and repairs in case of an accident.
According to the latest analysis of the American Automobile Association, the average cost of new car ownership in 2017 was $8,469, or $706 a month.
There are two ways to figure out how much to take for car expenses, Greene-Lewis said. The first: simply take the deduction based on the business mileage by keeping a log to show that you actually used the vehicle for that purpose.
The other is to claim your actual expenses by keeping a more detailed and accurate accounting, including gas and oil purchases, yearly – and usually substantial – depreciation, as well as each time a mechanic looks under the hood. There are apps for that, which can often transfer the information directly onto your tax return, she added.
One bright spot – not just for the self-employed – is if you bought an electric car in 2018, since you can claim a $7,500 plug-in electric drive motor vehicle credit on your taxes. The IRS, however, just announced that Tesla is the first car manufacturer to cross over the 200,000 cars sold threshold, so purchasers of the vehicle in 2019 will start to see that credit wind down.