Top 5 Measurements the IRS Uses to Determine Mileage Rate

At the end of each year, the IRS releases their standard mileage rates for travel for businesses, medical or moving reasons and nonprofits and charitable organizations. Instead of dealing with all the calculations required to determine actual expenses for using a personal vehicle for business purposes, the standard mileage rate is a much easier metric for determining what you can deduct from your taxes. With the end of the year approaching and the upcoming announcement of the 2020 standard mileage rate, we thought we’d take a look at exactly how the IRS decides upon this number in the first place.

Determining the Rate

The IRS partners with third-party research firm, Runzheimer International, to perform a comprehensive analysis of vehicle costs to determine what the average cost for owning a vehicle in the US will be in the next year. They look at everything from insurance premiums to new vehicle price averages, to predict the national average. 

Usually, year over year, the standard mileage rate only changes by a few cents. In 2019, the standard mileage rate was 58 cents per business mile traveled compared to 54.5 cents in 2018. Before we learn how the IRS rate will change for 2020, keep in mind these five measurements the IRS takes into account. 

1. Fuel Cost Averages

Most people assume fuel costs are the biggest factor in determining the standard mileage rate, but in actuality, the cost of fuel only makes up about 30% of the cost of owning and operating a vehicle. However, gas prices fluctuate a great deal throughout the year, being affected by events such as natural disasters as well as geographic location. For these reasons, anticipating the national average cost of filling up your tank in the upcoming year is an incredibly difficult number to pin down.

2. Insurance

 Car insurance is another vehicle cost that differs from state to state, but on average, insurance costs make up about 12% of your car-related expenses. The IRS tries to anticipate how high insurance premiums will be for Americans, and the premiums themselves are dependent on a number of different factors. Insurance rates have been on the rise in the US in the last five years. 

3. Maintenance Costs

The cost of performing regular maintenance on your vehicle accounts for around 6% of average costs. These costs can include tire replacement, retail parts and labor for routine maintenance, repairs to wear-and-tear items that require service and other expenses. Tires make up the largest chunk of maintenance costs.

4. Licensing and Other Fees

Fees, including those for registration, taxes and inspection, cost slightly more than maintenance expense at 7% of the overall vehicle costs. These costs differ depending on where you live and register your vehicle. 

5. Cost of Depreciation

You may find it surprising the largest cost of vehicle ownership comes from the cost of depreciation. The cost of depreciation is based on the difference between a vehicle’s cost when it’s brand new and its value after accounting for miles accrued and wear and tear. Generally, 45% of the cost of owning a vehicle in the US comes from depreciation. 

Anticipating the 2020 IRS Rate

At CompanyMileage, we follow auto industry trends closely. In 2020, the US Energy Information Administration (EIA) forecasts that fuel prices will fall, at least through the first half of 2020, due to high global inventory. At the same time, new car prices are expected to continue their upward trend, lending to an increase in other costs such as insurance and maintenance. Because of these two conflicting trends, CompanyMileage expects there to be no material change in the 2020 IRS standard mileage rate.

CompanyMileage is an industry-leading mileage reimbursement SaaS solution. We help thousands of clients each year save 20-30% on their mileage reimbursement expenses through SureMileage and the accompanying SureMobile app. To learn how much we can save your company in 2020, Request a demo with us today!