Employees who drive their own cars on the job for their companies no longer can count on Uncle Sam picking up the tab for those miles. Their employers — maybe. But not the federal government.
The new Tax Cuts and Jobs Act put the brakes on unreimbursed business mileage.
Let’s be clear about this. The IRS still allows deductions for driving on business. In fact, the IRS raised the mileage rate for 2018 by a penny from last year; it’s now 54.5 cents a mile.
But, although employers and proprietors can claim the mileage as normal business expenses, their employees cannot. The new law “suspended” unreimbursed employee expenses for the next eight years.
In practice, many employees have been accepting whatever mileage rate their companies offered and then claiming the difference up to the official IRS rate (53.5 cents last year) on their tax returns. Now, those employees lose that deduction, EricJohn Ltd. owner Eric Buechler says. They’ll have to depend entirely on their company mileage rates for any reimbursement.
But mileage was not the only type of work expense affected by the TCJA. Also eligible for those write-offs were other personally paid items, such as: Uniforms, including scrubs and shoes for medical professionals; essential work tools, ranging from hammers to stethoscopes; job-related education costs; union dues; and business-related meals and entertainment, to name some.
The cuts did not stop at work-related costs, either. They took in other “miscellaneous itemized deductions” involving investment costs, tax preparation fees and professional dues, among others.
Previously, Congress and the IRS had allowed all those types of expenses to be deducted from income after they reached 2 percent of adjusted gross income. The deduction was claimed on Schedule A.
In the big picture, Congress undoubtedly had a trade-off in mind. The disappearance of those write-offs will be offset in many cases by a much larger standard deduction. In this tax year, it has risen to $24,000 for a married couple, almost double the past allowance, and to $12,000 for a single taxpayer. A lot fewer people will be itemizing expenses in 2018 than in prior years, the Kiplinger Tax Letter observed recently.
The new law also suspended another common deduction involving miles on the road. It took out the tax break for job-related moving expenses, which would have allowed 18 cents a mile in 2018. The main exception is for military being transferred to new posts.
If you’re more curious and want to wade through more details, you’ll find them under IRS Notice 2018-42, available through the IRS Web site, www.irs.gov.
A last word about vehicles and business mileage. Beyond the unreimbursed issue, some business owners also need to know about new limits in the Tax Cuts and Jobs Act involving depreciation and numbers of vehicles in service. We at EricJohn Ltd. can keep clients — old and new — up to date with a phone call or email.