The Internal Revenue Service announced a midyear increase in the business mileage rate you can claim as a business tax deduction. Effective July 1, 2011, the rate increases to 55.5 cents per mile. This is a 4.5 cent increase. For the first half of 2011, the rate still remains at 51 cents per mile (January 1, 2011 to June 30, 2011).
What this means is that if you or your employees use a vehicle for business purposes, and claim the miles driven for business as a Federal income tax deduction, then you can use the IRS-standard mileage rate to calculate the amount of the deduction. You multiply the number of miles driven by the IRS-designated mileage rate.
(Alternatively you could deduct the actual costs of operating a vehicle for business. But many people just use the standard mileage rate because it requires less record-keeping. Business Toolkit explains in more detail. TurboTax has a great explanation, too.)
This is one of those times when a higher number is actually a good thing for taxes! Higher equals a bigger deduction.
And if you have an especially economical car, you can really benefit. The standard mileage deduction may be more favorable than your actual driving expenses. Even so, it’s perfectly allowable to choose the standard mileage deduction.
This mileage rate increase is good news for those in the United States, as it reflects the increased costs of operating a vehicle as a result of higher gas prices this year. A number of advocacy groups have been clamoring for this increased mileage rate. Some people claim that it took too long to raise the rates — gas prices were highest early in the year and are now actually falling a bit. However, the fact is that the rate has been increased. Let’s be practical — our government just doesn’t move fast (nothing that big does!). So I am just glad we got a mid-year increase. We got midyear increases in 2005 and 2008, too.
Remember, this mileage rate applies only to business travel. Other mileage rates apply for driving that you do for medical purposes and certain moving expenses (goes up from 19 cents to 23.5 cents), and charitable endeavors (still 14 cents per mile).
I’m not familiar with the situation in other countries like the U.K., Ireland, Australia, Canada and elsewhere — but perhaps, readers from those countries, you can tell the rest of us. Have you gotten any tax relief as a result of higher oil prices impacting the cost of fuel?