The IRS announced that the
standard mileage rate will decrease to 54 cents per business mile driven in
2016. That is a decrease of approximately 6.1% from the 57.5 cents allowed
in 2015. According to the IRS, "The standard mileage rate for business is
based on an annual study of the fixed and variable costs of operating an
When you use your car for business,
driving between job sites is deductible. So is driving between your home and a
temporary job site, job interviews, and conferences. Commuting between your
home and a regular place of business generally isn't tax deductible.
Standard Mileage Rates Versus
There are two ways for you to
calculate your automobile expenses. You can either claim $.54 per business mile
driven in 2016 (decreased from $.575 for 2015), or you can base your deduction
on the percentage of miles your car was driven for business purposes multiplied by the
actual costs incurred during the year. Allowable costs include gas, insurance,
repairs, parking at home, and either your lease payments, or if you own your
car, a factor for depreciation.
Generally, unless you drive your
car relatively few miles each year, with most of those miles being allowable
business miles, you're often times better off over time by basing your deduction on the standard mileage
Let's say you lease a car for $400
a month that you drive only 3,000 total miles during the year. And of those
miles, 2,000 qualify as deductible business miles. By calculating your
deduction based on the standard mileage rate, you'll end up with a deduction of
just $1,080 (2,000 business miles * $.54 per mile).
What would your deduction be based
on the actual expenses incurred, assuming you spend $1,200 on insurance, $.10
per mile driven for gas, and $1,200 on parking at home? Based on $7,500 of
total automobile expenses (including the lease payments), multiplied by
two-thirds (2,000 business miles divided by 3,000 total miles), your allowable
deduction for your automobile expenses jumps to $5,000 - almost five times the
$1,080 allowed using the standard mileage rate.
Now let's see what happens if you
drive 20,000 total miles during the year. Assuming your allowable business
miles remains at 2,000, you can either claim an automobile deduction of $1,080
based on the standard mileage rate, or $920 based on one-tenth (2,000 business
miles divided by 20,000 total miles) of your actual automobile expenses
Gas ($.10 per mile driven)
Parking at home
Business use % on 2,000
business miles driven
Allowable deduction for
auto expenses based
on actual expenses
How to Claim The Deduction
Taxpayers who are compensated as
employees generally will claim their deductible automobile expenses as an
unreimbursed employee business expense. These type expenses are reported on a
Form 2106 and are deducted as a miscellaneous itemized deduction on the
Schedule A. Keep in mind that miscellaneous itemized deductions are only
allowable to the extent they exceed 2% of your income, and are not allowable
when calculating the
Alternative Minimum Tax (AMT).
Those taxpayers compensated as
independent contractors will generally claim their allowable automobile expenses
directly against their self-employment income. For these taxpayers, automobile
expenses should be reported the
Other Deductible Miles
The use of an automobile in
connection with a charitable activity is set by statute and is deductible at a rate of 14 cents per
mile in 2016 and should be reported with other
charitable contributions as an
itemized deduction of the Schedule A.
You'll deduct any mileage driven in
connection with a qualified move at a rate of 19 cents per mile
in 2016, down from 23 cents per mile in 2015, and should report that mileage
along with your other allowable expenses on a
3903, Moving Expenses.
And don't forget that medical
related mileage is also deductible. For 2016, medical mileage is allowable at
19 cents per mile, and should be reported with all other medical expenses on
the Schedule A.
Why lower rates for medical and
charitable mileage? According to the IRS, "The
rate for medical and moving purposes is based on the variable costs", but omits
the fixed costs allowed when calculating the business standard mileage rate.
December 18th, the President signed the PATH Act into law,
extending certain tax breaks and making others permanent.
Here is a summary of some of the provisions of the PATH Act:
Opportunity Tax Credit that allows a tax credit of up to $2,500 per year
for undergraduate tuition was made permanent.
the provision allowing business owners who do not own their commercial real
estate to write off their leasehold improvements over 15 years
(versus 39 years without this provision), and to also write off the full
cost of improvements in one year.
extended the Section 179 deduction at $500k. This allows small
businesses to fully write off the first $500k of equipment purchased and put
into business use during the year.
Depreciation through 2019 in connection with new assets purchased by a
business. This allows taxpayers to write-off half the cost of eligible
assets in the first year, even if the Section 179 deduction was not claimed.
Purchases of used property are not eligible.
extends the reduced "built-in gains" period for C-Corporations that elect
S-Status. Previously, corporations were at risk for this tax for
2016 the credit for certain energy efficient improvements made to your
primary residence, including doors, windows, and insulation, plus energy
efficient heating systems, air conditioning, hot water heaters, and other
eligible property. The credit is limited to 10% of the cost, with a
lifetime max of up to $500 per household. More info is available at:
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Establish a savings and debt reduction goals for the year
Try to increase your monthly contributions to your 401(k)
or 403(b) plans. The maximum annual contribution for
2016 is $18,000. Anyone 50 or older can contribute
an extra $6,000
Automatically transfer $458.33 per month from your checking account into a Roth or Traditional
IRA, and $1,166.67 per month into a 529 Account and/or $166.67 per month into an Education Savings Account for each
of your children
For 2015, the standard deduction for a single individual is $6,300 and
for a married couple is $12,600. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2015, the personal exemption is $4,000. Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $118,500
for 2015 and 2016, up from $117,000 in 2014.
The standard mileage rateis $.54 per business mile as of
January 1, 2016, down from $.575 for 2015.
The maximum annual salary deferral into a 401(k) plan or a
403(b) plan is $18,000 in 2015 and 2016, up from $17.5k in 2014. And if
you'll be 50 or older by December 31st, you can contribute an extra $6,000 into
your 401(k) or 403(b) account this year.
The maximum annual contribution to your IRA is $5,500 for
2015 and 2016. And if you turn 50 by December 31st, you can contribute an extra
$1,000 that year. You have until April 15, 2016 to make your 2015 IRA
In a shocking development, the
IRS recently announced that they will be honoring the FICA tax refunds
submitted by residency programs and individual doctors. The catch is
that only FICA taxes paid prior to 4/1/05 qualify.