2015 Business Mileage Rate Increases!

3 minute read time.

You may be surprised to learn the standard mileage rate used to calculate the deductible costs of operating a business vehicle has been increased for 2015 to 57.5 cents per mile (it was 56 cents per mile in 2014). What makes this so surprising is the fact that gas prices at the pump have plummeted over the past several months. And, at 57.5 cents per mile, this is actually the second highest rate in the tax service’s history (in 2008, the standard mileage rate was 58.5 cents per mile). The standard mileage rate is used for business cars, vans, and pickup or panel trucks.

So, what does the IRS consider when revising the annual mileage rate? Actually it relies heavily on research provided by Runzheimer International. Runzheimer, which has provided annual vehicle cost data to the IRS since 1980, specializes in employee mobility solutions, including business vehicle reimbursements.

gas hose

Actually, the cost of fuel, while an important factor, represents only a portion of what the IRS considers when setting new mileage rates each year. The IRS uses a variety of fixed and variable factors to make the determination. For 2015, the fixed cost components are trending higher, thus offsetting the lower costs for fuel. For example, it is becoming more costly for people to own or lease a vehicle. Costs are increasing for insurance, maintenance, repairs, tires, and depreciation. Whether or not the IRS also feels fuel prices are likely to climb in the near future is hard to say, but that could be another factor.

While taxpayers may choose between using the standard mileage rate and claiming the actual costs of vehicle use, in order to have this choice, the election to use the standard mileage method must be made for the first year the vehicle is placed in service. In later years, the taxpayer gets to choose. In any subsequent year in which actual expenses are deducted, only the straight-line depreciation method is allowed. This is because the election to use the standard rate method is considered to be an election to exclude the property from MACRS.

There are a few other exceptions to using the standard mileage rate:

  • It cannot be used if the taxpayer has five or more vehicles being used simultaneously (as in a fleet operation),
  • If a vehicle is leased, either the standard mileage rate or a FAVR* allowance must be used for the entire lease period,
  • It cannot be used by any employee of the U.S. Postal Service providing services on a rural route if the employee receives qualifying reimbursements for the expense, and
  • Before 2011, it could not be used on vehicles used for hire, such as taxis.

*Note: A “FAVR” allowance is a fixed and variable rate allowance used to reimburse employees using their own or leased vehicles for work.

Tax Tip

Fascinating Fixed Assets Fact: It is interesting that while the mileage rate for business use is increasing, the rate for driving a vehicle for medical or moving purposes, is decreasing by half a cent to 23 cents a mile (from 23.5 cents a mile in 2014). These rates are dependent on using only variable rates such as gas prices. (For example, depreciation rates, which have been continuing to rise, are not considered.) The rate for miles driven in the service of a charitable organization remains unchanged at 14 cents a mile.

Deductions computed under the standard mileage rate method are in lieu of deductions of depreciation and actual operating costs, except for parking fees and tolls attributable to business or income-producing use, which may be deducted in addition to the standard mileage rate