The IRS Increases Standard Mileage Rates to 55.5 Cents Per Mile
Toward the end of June, the IRS announced a rare mid-year change in the standard mileage deduction rates. Rising gas prices played a role in this decision to increase the rates for Business, Medical, and Moving. Since gas is only one of many factors that affects driving costs the 4.5 cent per mile increase may not seem to be the same percent increase that gas have gone up this year.
Keep in mind, your driving costs include vehicle depreciation, maintenance, and insurance as well. Remember that if your actual documented costs exceed these rates, you can take your actual expenses instead. You must use the standard rate the first year you put the car in service, but may change methods in subsequent years. If you are leasing a car, you must use the same method each year that you chose in the first year of the lease. Do the math and choose wisely. Following are the rates, in cents per mile, which you are allowed to deduct for the end purpose listed.
What’s the impact of this change? The EPA offers an estimate of 12,000 miles driven per year, but it’s safe to assume those who are driving for business purposes are not average. So, if we assume a 20,000 mile per year driver, this increase in rates will provide an extra $450 in deductions, and $112 back in the pocket of the 25% bracket filer.
To take this write-off the IRS expects you to keep contemporaneous (“real time”) records, a log of daily miles driven justifying the proper use. The easiest way to have this disallowed in an audit is for it to become obvious the records were recreated after the fact, and not as the miles were driven.
Last, you’ll notice that the charitable rate hasn’t changed. It was 14 cents per mile in 1998 and hasn’t changed since. Does Scrooge work for the IRS? Hardly. In a strange quirk of our tax code, it’s congress that’s responsible for the rate allowed for charitable miles driven. Now is as good a time as any to give your local congressperson a call or send a note mentioning that you support bringing this rate up to a more reasonable level.