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Business Corner

IRS increases mileage deduction rate

by Small Business Tax News

The IRS in June offered slight relief to the record gas prices faced by taxpayers. Effective in July through the rest of the year, the optional standard mileage rate is 58.5 cents, up from 50.5 cents in the first half of the year.

The increase came six months before the typical adjustment to the rate due to high gas prices, according to IRS Commissioner Doug Shulman.

“Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile,” he said. “We want the reimbursement rate to be fair to taxpayers.”

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. The rate is also used as a benchmark by many businesses and the federal government to reimburse employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by 8 cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The IRS noted that taxpayers have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

Since November, when the IRS announced the 2008 optional standard mileage rates, nationwide gas prices have increased by more that 40 percent, from less than $2.85 a gallon to $4.06 in June, according to the American Automobile Association.

While tax preparer H&R Block avoids taking positions on tax policy, the company’s chairman, Richard Breeden urged U.S. Treasury Secretary Henry Paulson to increase the mileage deduction rate.

“We are suggesting this one-time acceleration in the normal deduction rate adjustment process in the hope that it is a practical and non-controversial step that would benefit all Americans impacted by the extraordinary price increases in recent months,” Breeden said in a letter to Paulson.

In 2005, the IRS made a similar adjustment beginning in September due to high gas prices.

Reprinted with permission of Small Business Tax News, Copyright 2008, 1-301-951-1240. This information is distributed with the understanding that the editor and publisher are not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

Reprinted from Central Vac Professional, August 2008