High Cost of Fuel Pushes IRS to Increase Mileage Rate Deduction
As a consumer, it's tough not to take notice of the soaring gas prices. For some, the cost to fill your tank for necessary commutes is one of the largest expenses per month.
Someone else has been noticing too -- The IRS. In a surprise mid-year move, the IRS says it is bumping up mileage reimbursement rates for the second half of the year.
The rate will increase to 55.5 cents per mile for all business miles driven from July 1, 2011, through the end of the calendar year. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011.
The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.
"This year's increased gas prices are having a major impact on individual Americans. The IRS is adjusting the standard mileage rates to better reflect the recent increase in gas prices," said IRS Commissioner Doug Shulman in his June 23 press release. "We are taking this step so the reimbursement rate will be fair to taxpayers."
Self-employed taxpayers who use their own vehicle for business purposes have a choice to deduct a portion of their actual expenses or take a standard mileage deduction. This increase in the mileage rate does not change those options, but it may make the standard mileage rate the more cost-effective alternative.
If you choose to deduct the standard mileage rate, you opt to accrue a 55.5 cent reimbursement on the dollar for every mile driven for business purposes.
The following are deductible business miles: Driving from one workplace to another in the course of your business or profession, visiting clients or customers, going to a business meeting away from your regular workplace, or driving from your home to a temporary workplace (a location that you work at for one year or less).
Taxpayers who incur costs as they relate to medical expenses can also deduct a percentage (23.5 cents) on each mile driven.
According to the IRS, if you are filing a Schedule A and reporting medical expenses, include in those expenses amounts paid for transportation primarily for, and essential to, medical care, such as miles driven for routine treatments, such as physical therapy or dialysis, miles driven by a parent who must go with a child who needs medical care, and routine travel to the doctor.
If you move, the same 23.5 cent deduction applies as part of your total deductable moving expenses.
In order to deduct moving expenses, your move must be due to, or closely related to, the start of work, and you must meet a distance test, which says your new job location is at least 50 miles farther from your former home, than your old main job location was from that same former home.
If you are using your own vehicle(s) to haul your belongings, you can deduct all actual expenses incurred in the move (gas, oil, repairs, tolls, etc.), or you can choose a standard deduction, now at 23.5 cents on every mile.
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Published by James Skye - Featured Contributor in Business & Finance
As a 15-year IRS employee with a strong freelance background, my education and experience affords me the opportunity to contribute articles relating to personal finances and taxes. I also enjoy writing relig... View profile
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