IRS Announces Mid-Year Increase in Standard Mileage Rates
The high price of gas just got cheaper thanks to the IRS. The IRS has raised the business standard mileage reimbursement rate eights cents, from 50.5 cents-per-mile to 58.5 cents-per-mile to reflect skyrocketing gasoline prices. The new rate is effective July 1, 2008 through December 31, 2008.
Every year, usually in the fall, the IRS sets the standard mileage reimbursement rates for the next year. In November 2007, the IRS announced that the business standard mileage rate would be 50.5 cents-per-mile for 2008. One gallon of regular-grade unleaded gasoline averaged $3.10 in November 2007.
When gas prices started climbing over $4 per gallon, many lawmakers in Congress and consumer advocates urged the IRS to increase the business standard mileage rate. A mid-year increase, although rare, is not unusual. You may recall that the IRS made a mid-year change after Hurricane Katrina devastated the Gulf Coast and gas prices jumped to what were then record-highs.
The mid-year increase will help many businesses absorb the cost of higher fuel prices. Businesses generally can deduct the entire cost of operating a vehicle for business purposes. Alternatively, they can use the business standard mileage rate. Their deduction is calculated by multiplying the standard mileage rate by the number of business miles traveled. Self-employed individuals also benefit from the higher rate as do employees whose employers do not reimburse, or only partially reimburse, them for business miles.
While using the business standard mileage rate makes life a little less complicated, there are some drawbacks. That includes any "bonus depreciation" that has been made available by the Economic Stimulus Act for 2008 only vehicle purchases. The rate includes depreciation and you cannot take any additional depreciation deduction. The IRS indicates the portion of the rate that constitutes depreciation and therefore reduces the basis of the vehicle. The rate also cannot be used for fleet vehicles and in other situations. If you have any questions about when the business standard mileage rate cannot be used, please contact our office.
With any tax break, it's important to keep very accurate records. This is especially true with the mid-year change in the business standard mileage rate. Businesses and individuals who use the standard rate must document all of the miles driven for business purposes. Remember that business travel before July 1, 2008 must be computed using the old rate of 50.5 cents-per-mile. Travel after on and after July 1, 2008 must be computed using the new rate of 58.5 cents-per-mile.
The IRS also allows taxpayers to claim mileage for using a vehicle to obtain medical care or as a part of a move. The medical/moving rate is traditionally lower than the business mileage reimbursement rate. Before July 1, 2008, it was 19 cents-per-mile. Effective July 1, it jumps to 27 cents-per mile for the remainder of 2008.
Although it is unlikely that the IRS will increase the business standard mileage rate again this year, there is a possibility that Congress could pass legislation to raise the rate. Legislation was introduced to raise the business standard mileage rate to as high as 70 cents-per-mile.
Congress could also raise the charitable standard mileage rate. That rate is currently 14-cents-per-mile. Because the charitable rate is set by law, the IRS could not raise it mid-year along with the business and medical/moving rates.
If you have any questions about these mid-year increases or how to apply them, give our office a call or drop us an e-mail. We will be pleased to help.
