New 2024 Mileage Deductions For Church Use of Vehicle
By Raul Rivera
The Internal Revenue Service (IRS) has recently updated its standard mileage rates for 2024, marking significant changes impacting many taxpayers, including clergy members like Pastor John and his church. These rates are essential for calculating the deductible costs associated with operating vehicles for business, charitable, medical, or moving purposes.
For 2024, the IRS has set the business mileage rate at 67 cents per mile, a 1.5-cent increase from 2023. This boost reflects the changes in the costs of operating a vehicle, which impacts individuals like Pastor John, who rely on these deductions for their ministry-related travel expenses. On the other hand, the rate for medical or moving purposes has been reduced by 1 cent to 21 cents per mile, which may affect those in the military or individuals with significant medical travel expenses. The charitable rate remains constant at 14 cents per mile, as it can only be altered by congressional action.
The Impact on Pastor John and His Church
Let’s look at an example of Pastor John, the pastor of the “Best Church in Town.” He earns an annual salary of $68,000. He diligently serves his community, often using his personal vehicle for ministry-related activities. Each year, he typically drives about 9,300 miles for various church functions. With the church reimbursing him at the standard IRS mileage rate, the increase for 2024 means that Pastor John will receive $6,231.00 for his ministry-related travel expenses over the course of the year (9,300 miles x $0.67). This incremental amount can positively affect his tax return by increasing his non-taxable income, provided the church maintains its reimbursement policy in line with the new IRS rates. On the flip side, the church will need to adjust its budget and be prepared to include the $6,231.00 in its ministerial compensation budget.
How the Mileage Deduction is Determined
This enhancement in the business mileage rate is based on an annual study of the fixed and variable costs of operating an automobile. The study takes into account the price fluctuations in the auto industry and the cost of fuel, maintenance, insurance, and other vehicle-related expenses. The IRS allows taxpayers to calculate the actual costs of using their vehicle if they prefer, but many, including Pastor John, find the simplicity and predictability of the standard mileage rates to be beneficial for budgeting and record-keeping.
Pastor John Can Choose to Deduct Actual Costs vs. Mileage Deduction
To keep track of the actual costs of using his vehicle, Pastor John will need to keep records of the following items:
- Depreciation (In essence, it’s the value of the car at the time it was placed in church use, divided by 5.);
- Road Fees;
- Lease payment;
First, he must keep track of actual miles used for ministry and actual miles used for personal use. Now that he knows what is personal and what is business, he will have to determine the percentage of church business use. For example, he has 9,300 miles for business use out of a total of 19,500 miles per year.
Business Use Percentage = (9,300 / 19,500) * 100
Business Use Percentage = 47.69%
Now that pastor John knows his business use percentage, let’s assume that the actual cost of the use of his car was $11,511.00. He will then use the following formula to determine what he can deduct on his tax return as actual business costs of using his vehicle for church business use.
Actual Business Use = (11,511 * .4769) = $5,489.60
It’s apparent that taking the mileage deduction is advantageous in this example as it gives pastor John $6,231.00 vs. $5,489.60. Plus, the amount of record-keeping makes the actual costs too burdensome.
Taxpayers are generally required to opt for the standard mileage rate in the first year the car is used for business purposes. Once chosen, they can switch between the standard rate and actual expenses in subsequent years.
The IRS's adjustments to the standard mileage rates for 2024 serve as a reminder of the ever-evolving landscape of tax deductions. For Pastor John and many others, these changes will have a tangible impact on their finances, emphasizing the importance of staying informed and adapting to new tax regulations.
Required Record Keeping for the Church
For the church to lawfully reimburse Pastor John, the church must have an “accountable” reimbursement plan approved in its minutes that meets the requirements of IRC 62(a)(2)(A). The term “accountable” simply means that the reimbursement can be backed up with receipts and/or good record keeping, proving the actual amount reimbursed is a legitimate expense, as described in Part IV of IRC 161. Below are the five steps required to ensure the church’s accountable reimbursement plan meets the IRS requirements.
- Write down a list of all possible expenses that the pastor may incur during the normal course of ministry;
- Prepare a reimbursement policy;
- Create a reimbursement form
- Call a board meeting to discuss implementing the accountable reimbursement plan; present the reimbursement form and policy and have the board of directors approve it.
- Properly record reimbursements by entering each transaction into a 'Mileage Deductions' subaccount under the 'Travel' account in the chart of accounts. Every time a check is written to reimburse Pastor John, the expense is placed there.
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